Fans put kick in Man United…
It’s the club’s worldwide following that makes it tick
FOR A SOCCER CLUB that scooped two of Europe’s most prestigious prizes this year, it’s odd to hear Manchester United CEO David Gill claim its business model isn’t necessarily about winning trophies. “It’s important we challenge,” says Gill. “But when it comes to the end of the season we need to be in the final stages of the FA Cup and challenging at the top of the league.”
We’re talking, of course, of the English soccer league that last year scooped R9,4bn (£625m) in television sponsorships, enough to award even the bottom-placed team with a £20m “parachute payment” as it’s ominously referred to. For champions Man United, £50m was paid, which in rand terms is more than most PSL teams are worth on their own.
Manchester United is big business worldwide – and in South Africa, it seems. Its recent trip to SA – sponsored by Vodacom – was based on the precept the club has an estimated 15m supporters in SA alone, more than in Britain. As with any major brand, it’s all about its following and profile. And so while business journalists following Gill were discouraged from asking probing questions about the toing and froing of want-away football star Christiano Ronaldo, the mere existence of its hullabaloo is an example of the self-perpetuating hype that follows the club.
Everything about Manchester United is big. The club quite naturally ties up with multinationals, says Gill. Enter its fouryear, £56,5m sponsorship deal with AIG, a North American insurance company, which is ideally aimed at building both companies’ mutual interests in Asia. Man United has 190m supporters in Asia, more than three times its next largest market, Africa.
Shirts and other club memorabilia are sold into such markets, heightened by the occasional touring side, with the next soccer touring trip to Asia planned for 2009. But it’s still heartening to see the club’s main revenue driver remains so-called match day receipts – revenue earned from punters turning up to see their heroes play.
Herein lies an interesting point. With its stadium, Old Trafford, situated in Manchester’s heavily industrialised Trafford Park region and already close to maxing out at 76 000 souls, and with Britain’s High Street retail sector suffering, there must be questions about how United retains growth in match-day revenue. Certainly ever-increasing ticket prices are being sniffed at this year.
Balanced against that is its single biggest cost: players’ salaries, which are becoming difficult to swallow let alone for the club to absorb. In fact, around 50% of total turnover (£295m last financial year) was paid to its players.
Gill acknowledges that escalating wages “are a challenge” for football but believes the business can manage them. First, players want to play for teams that win trophies, so Manchester United has a cache it can use to leverage players in negotiations. Second, players’ wages are the only significant cost, Gill said.
“We’re lucky,” said Gill. “We just have to get the balance right on players’ wages because the rest of the business is high margin.” Almost 30%, in fact, because its earnings before interest and tax was £80m last year. And when TV revenues are higher, players tend to be given better rewards.
In truth, TV must remain a huge source of value to the club (and others like it). With the arrival of DVDs and other means by which consumers can fast-forward through adverts, live TV is becoming a high-value point of access to advertising. There’s nothing like sport to provide a captive audience.
Meanwhile, the 2005 delisting of Man United from the London Stock Exchange has done nothing to dampen its profile. Gill says analysts had “fallen out of love” with football stocks while the emergence of major shareholders had killed liquidity. What followed was the controversial £790m bid by the Glazers, a North American family with interests in American gridiron football.
Gill says taking Man United private has turned out to be a major benefit, even though he was part of the board that first helped repel an earlier offer by the Glazers. “Previously, there were committees and lots of debate. Now I can pick up the phone to Joel [Glazer] and get a yes or a no,” says Gill on how decisions are made.
For example, players get bought after a simple phone call: four were hired in short order in the 2006/2007 soccer season – suggesting perhaps that fleet of foot is appreciated as much off the field as on it.
Getting the balance right on players’ wages. David Gill