The Business Of

Man United | How Do They Make Money?

Morning All!

Slightly longer newsletter today (but well worth it we promise!) so let’s kick things off…

So, we see massive numbers flying around in football. Footballers’ wages seem to be getting higher and higher. Transfer fees seem to be getting higher and higher. Earlier this year, Chelsea forked over £107m (breaking the British record) to buy Enzo Fernandez from Benfica. And just last month we saw Man City being charged by the Premier League for breaching over 100 financial rules! After spending over £2bn since their 2008 takeover… we’re not surprised!

But where does this money come from? How can Man City, Chelsea, Man United, and most of the top teams all pay such such high transfer fees and stratospheric wages for players?

Well fortunately, Man United is a publicly traded stock and so all their financial reports can be easily accessed. As we can see from the chart below, the 3 main ways the company makes money is through the following segments: Commercial, Broadcasting and Matchday. So, without further ado, let’s dive into each of them below!

Matchday

So let’s start with perhaps the most obvious way Man United makes money - ticket sales! United’s stadium, Old Trafford, is quite the sight. The historic ground has a massive capacity of 74,310!

And the club are actually in talks to extend the ground so that capacity can get up towards 90k. This isn’t unique to United though. In 2019, Tottenham moved into their new stadium (which they had started building in 2015). Liverpool are currently extending their stadium to increase capacity by 7k. But why do clubs want to build new stadiums and extend capacity? Well, it’s because of matchday revenue.

Matchday ticket revenue is a simple function of ‘tickets sold x average ticket price’. And so, the larger stadium you have, and the higher attendance possible, the more tickets that can be sold. Of the top 6 teams in the Premier League, Man United have the advantage here…

So having the highest capacity is an advantage. But how many of United’s games are sold out? Well, the answer is pretty much all of them. Which is quite an incredible feat considering you have to sell >70k seats every game. But the thing to note here is that Man United actually don’t have to sell >70k seats every game - it’s more like 25k. Why? Because every year the club sells ~50k season tickets. This strategy used by football clubs gives great visibility in terms of revenues.

The second part of the Matchday revenue equation is the price of tickets. The below chart shows us how the average season ticket price has changed for the clubs that have been in the Premier League over the last 10 years.

Remarkably, the average season ticket price has not moved for Man United over the last 10 years. We would have expected more price inflation here - but fair play to the club. They haven’t made their most loyal fans cough up more every year for tickets - even though I would imagine they have the pricing power to do that.

So, let’s do a bit of maths:

(i) 50,000 season ticket holders paying £741 = £37m.

(ii) The other 25,000 fans pay on average ~£80 for a ticket. Given United play around 30 home games a year, the non-season ticket holders would pay £60m (25,000 x £80 x 30).

(iii) Then add on all the food and drinks bought on matchday too…

… and Man United comfortably make over £100m every year from their Matchday segment. And that’s exactly what the chart below shows us. In fact, in 2018, 2019, and 2022, this segment made £110m, £111m, and £111m in revenues. Very consistent revenue streams!

Broadcasting

The second revenue stream comes from the fact that the supporters in the stadium aren’t the only ones who watch the game. There’s millions at home, in pubs, and all over the world watching the same game!

And this is incredibly lucrative for Man United. Premier League matches are broadcast live in the UK by 3 partners - Sky Sports, BT Sport and Amazon Prime Video. And outside the UK, they are broadcast by other media partners including NBC (US) and Star Sports (India). But for the right to broadcast these games, the Premier League charges Sky, BT and Amazon a hefty fee. In 2021, the Premier League sold media rights for the next 3 seasons (2022/23, 2023/24, 2024/25) for a whopping £10.4bn! £5.1bn will come from Sky, BT and Amazon for the UK rights. And £5.3bn will come from overseas partners. This £10.4bn (over 3 years) is then split by all 20 clubs in the Premier League.

What this all means is that the Premier League is actually Man United’s biggest customer, making up ~25% of the club’s total revenue (Man United received £140m from the Premier League in 2022!) This is incredibly important to appreciate. Man United’s biggest customer isn’t the fans in the stadium, it isn’t Rashford and co. It’s the Premier League, because what Man United really offer is a spectacle. A spectacle that billions around the world love watching.

This is why promotion to the Premier League is so coveted. Because media rights are shared by the clubs much more evenly that what you see in Spain, where Real Madrid and Barcelona take the bulk of the La Liga media rights. The 20th placed team in the Premier League in the 2021/22 season (Norwich) took home £99m whilst champions, Man City took home £164m. However, in the same season, champions of La Liga, Real Madrid took home €161m whilst 10 of the 20 teams took home less than €55m!

However, when it comes to European competitions, UEFA media rights are a lot more dependent on performance. The table below (from Man United’s 2022 annual report) shows the different bonuses available for wins and progression in the European tournaments.

So, as we can see, getting into the Top 4 in the PL and having CL participation brings a club an extra €15.65m. Whilst finishing 5th and having Europa League participation brings €3.63m. One place costs a huge €12m! No wonder Arsene was pretty content with 4th every year…

Commercial

The final revenue stream comes from ‘commercial’ - which can be split into (i) sponsorship and (ii) retail. In terms of sponsorship, Man United is a brand that a lot of companies want to be associated with. With millions of viewers watching the games, millions of fans buying the shirts - companies get a lot of recognition from plastering their logos on the United team shirt, and all over Old Trafford. But this comes at quite a fee… the team’s current shirt sponsor, TeamViewer, signed a contract paying Man United £235m over 5 years (so £47m per year!) And it doesn’t stop at the main playing kit… even the club’s training kit attracts sponsors! The current sponsor, Tezos, is paying Man United a whopping £20m a year to be on the front of the club’s training kit.

Not all things end brilliantly though and TeamViewer are actually hoping to exit their contract with United. Whether United can attract another sponsor willing to pay such a large sum per year is unknown, however a lot will depend on the team’s performances - which we’ll dive into more on Friday in the ‘Outlook’ section.

Either way, Man United’s ‘advertising real estate’ on their shirts and around Old Trafford has been a strong source of income over the years. The chart below shows how sponsorship income has stalled slightly post-pandemic.

The other way Man United makes revenue in the commercial segment is through retail activities. In particular the sale of their shirts. Similar to the media rights, Premier League clubs sell the rights to sell their club’s shirts to certain companies. The main ones are the sporting giants, Adidas and Nike. For 13 years, from 2002-2015, Nike had the rights to sell Man United shirts (meaning they would pay United a certain amount every year, and in exchange Nike would take the majority of the income from shirt sales). However, in 2014, Nike decided not to renew their contract and Adidas swooped in on a 10-year contract. The German giant pays United £75m a year, which is an astonishing rise from the Nike contract which saw United get paid £25m/year. And this huge contract puts United at the top of the tree vs the other top 6 PL clubs.

But why did the contract go up 3x, despite Man United not being in as strong a position? Well, compared to 10 years ago, more football shirts are being bought globally and at higher prices. And for Adidas that means higher revenues.

Whilst we saw that media rights are fairly evenly distributed between the top and lower teams in the Premier League, we do start to see real discrepancies in the arena of shirt contracts. Whilst Adidas pay United and Arsenal £75m a year, they only pay Leicester £4m/year and Leeds £10m/year. Poor Leicester - they’ve been champions more recently than United or Arsenal!

Okay so what if Man United don’t recover under Ten Haag and keep sliding down the league? Will they be able to renew their contracts at such high value? Well, no. And a clause in the Adidas contract actually give us a hint. If United fail to get into the top 4 two years in a row, Adidas will cut their annual payment by 30% so United will miss out on £23m/year.

7th Mar 2023

Nigel Jacob CFA