Manchester United Football Club’s net income fell by 84% for the year to June end 2014 even though they have posted record revenues for the same period.
The figures that we are talking about are not small change, as net income is down from £146m a year ago to just £23.8m this year. The Club’s bosses also predict revenues will fall across 2015 after failing to qualify for the Champions League, a competition that they have been a part of for the last 20 years!
Here we look at the factors that have contributed to the drop in profits for Manchester United and try and highlight some of the key Marketing and Financial factors that may have contributed to the drop in profitability.
Manchester United is a global brand and business raking in millions of £ GBP from sponsorship, merchandise, ticket sales and broadcasting. Find out more about Manchester United’s business model here. An 84% drop in profits doesn’t happen overnight so what has caused this steep drop and could it have been anticipated?
1. Following the departure of Sir Alex Ferguson the business had a tumultuous relationship with Manager, David Moyes who was sacked from the managers position in April after less than a year in the role. This resulted in a compensation pay out in excess of £5m to David and his team.
2. The club has made no investment in STAR PLAYERS, the type that fuel global interest in the Club and support the commercial goals, helping to sell tickets, merchandise, sponsorship and giving the fans something to aspire to.
3. Manchester United’s operating expenses rose by £62m in the same fiscal year, more than half of which went to employees.
4. The clubs performance means confidence has dropped with Manchester United’s numerous stakeholders (Fans, Owners, Sponsors) and the competition. As a club that is expected to be successful much of the ‘currency’ that comes with success has been lost.
So, what can business owners learn from this?
1. People buy from People – Sir Alex Ferguson was a pioneer for Manchester United and fans, sponsors, owners bought into him as much as they did the club history and the players. Do you have strong leadership and management guiding and being a figurehead for the business? It matters…
2. Succession Planning – Always be looking for the businesses ‘next top employee’. Since the departure of Sir Alex Ferguson the club has lost position, players and profits! Could this have been prevented with a better succession plan?
3. Keep an eye on the finances – Businesses can plan for drops in profitability and manage the drop via cost cutting or raising finance. But this should be planned and managed, the key is to first understand how profit is made within the business (which you’ll be surprised at how many businesses we have worked with that can’t track where profit is made!) and then regularly review through management accounting on a monthly basis. Just because sales revenues have increased it doesn’t automatically correlate with an increase in profitability.
So ok, this is not a definitive or stripped down analysis of the clubs income and expenditure or 5 year strategic corporate and commercial plan; but it does give a good insight into the issues that a business has and how they can result in a drop in profitability.
What would happen if your profits dropped by 84%? …You’d need to speak to Andy, that’s what!