By Andrew Warshaw and Paul Nicholson
November 18 – The full scale of the pressure on Jose Mourinho to succeed in his first season at Manchester United has been underlined by the revelation that the club will lose more than £20 million in sponsorship income from Adidas if they fail to qualify for next season’s Champions League. But the club says it is still on course to hit record revenue of between £530 million and £540 million for the full year.
The German sportswear giant is in the second season of a 10-year, £750 million deal but after announcing a fall in first-quarter revenue, United revealed the annual payment will reduce by 30% if they miss out for the second season running on Europe’s flagship club competition.
United are currently sixth in the Premier League, six points off the top four, and host title hopefuls Arsenal in a showpiece fixture game at lunchtime on Saturday when Mourinho comes face to face again with Gunners boss Arsene Wenger, with whom there is no love lost.
“There is a clause in the Adidas contract that applies if we are missing from the Champions League for two years in a row,” revealed United’s chief financial officer Cliff Baty. “So what that really means is that we would get, if we did miss out again, that would kick in and we would see 30% of the future annual payment reduced. An example would be if we [were due to receive] £70 million [in a given year], we would not receive £21 million.”
First quarter financial results show revenue of £120.2 million and EBITDA (earnings before interest, tax, depreciation, and amortisation) of £31.2 million, down £3.4 million on the same quarter last year but still generating an operating profit of £6.2 million. For the full year EBITDA is expected to be between £170-180 million.
Highlights in the first quarter for Man Utd were new five new sponsorships: EA Sports and Tag Heuer joined as global sponsors;
Apollo upgraded from a regional sponsorship to a global one; the Hong Kong Jockey Club renewed a regional sponsorship; while Virgin Money signed on as a financial services partner.
Commercial revenue for the quarter was £74.3 million, an increase of £3.1 million over the prior year quarter. Sponsorship revenue was £44.4 million, down £1.9 million but retail, merchandising, apparel and product licensing revenue was up £5.1 million to £27.4 million, mainly due to the start of the new adidas deal. Interestingly, despite their non-stop social media growthmobile and content revenue was fairly static at £2.5 million, compared to £2.6 million in the prior year quarter.
The lack of Champions League football this quarter was most evident in an £8 million drop in match day revenue to £16.8 million. The club played three fewer home games in the quarter. But this was compensated by a small boost in broadcast revenue of £1.5 million with the first year of the Premier League TV deal kicking in.
Ed Woodward, Man Utd Executive Vice Chairman, was typically bullish despite not having Champions League football. “While our financial results for this quarter reflect the impact of our non-participation in the UEFA Champions League, we are pleased that we remain on track to deliver record revenues for the coming year. During the quarter we added a number of top quality players to our squad, which once again demonstrates our determination to challenge for trophies,” he said.
One concern for the club will be the increase in net debt by £51.5 million to £337.7 million. This is the result of the fall in the pound against the US dollar impacted the club’s US dollar debt (USD/GBP exchange rate moved from 1.5128 at 30 September 2015 to 1.2941 at 30 September 2016).
A semi-annual cash dividend of $0.09 per share will be paid on 5 January 2017.
United spent close to £150 million during the summer transfer window in bringing Paul Pogba (for a world record fee), Henrikh Mkhitaryan and Eric Bailly to the club plus Zlatan Ibrahimovic on a high-profile free. But they have started slowly under Mourinho, winning only five of their opening 11 Premier League fixtures. Unless Mourinho an turn this into a top four finish it looks like the players will be the only people who get paid at the financial year-end.
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