Fans put kick in Man United…

It’s the club’s world­wide fol­low­ing that makes it tick

Finweek English Edition - - In The Spotlight - DAVID MCKAY davidm@fin­week.co.za

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

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