United’s struggles strain business model
Manchester United won some much needed breathing space with its comeback in the Champions League on Wednesday after a series of losses on the pitch put pressure on the business model of one of the richest clubs in Europe.
While loyalties in soccer don’t evaporate overnight, an early sign that casual fans might be wavering is when selling merchandise becomes harder. A dwindling fan base in turn jeopardises the lucrative sponsorships that drive revenue.
United said last month that sales of merchandise to fans slipped by £400 000 to £9.1 million in the last three months of 2013 as the team struggled for consistency under new manager David Moyes.
“Man U’s performance has definitely affected sales,” said Hairul Amar, business development manager of Premier Football International, which sells soccer kits in Singapore.
“As the season progressed, we saw a dip. If we look at the sales of jerseys of Arsenal and Liverpool for example, in terms of the rate of sales, I can say they have overtaken Man U’s demand currently,” he added.
The team is in seventh place in the 20-team Premier League and the Champions League is its last hope of winning a trophy this season.
United uses its base of 659 million followers to secure partnerships with companies covering everything from airlines to paint. It has a stellar cast of sponsors which helped drive commercial revenue to £152 million in 2012-13, more than the club earned from either broadcasting or match-day income.
“We attract leading companies such as Chevrolet, Nike and Aon that want access and exposure to our community of followers and association with our brand,” United, owned by the American Glazer family and listed in New York, say on their website.
In January, United dropped to fourth in Deloitte’s annual survey of team revenues, figures based on 2012-13 when the club won the Premier League. Real Madrid, Barcelona and Bayern made up the top three.
A new television deal this season is likely to restore United to the top three, with the club forecasting revenue of £420-£430 million from £363 million last season.
The club, which boasts more fans than European rivals Real Madrid or Barcelona, says sales remain strong at its Old Trafford stadium store and senses a mood of defiance among fans.
Executive vice-chairman Ed Woodward is confident that United’s fan base will prove resilient and believes that the club has the business model in place to bounce back strongly.
“Some of our competitors haven’t won the Premier League for a long time but are still selling a huge number of shirts out there globally,” he told analysts last month in a dig at rivals like Liverpool and Arsenal.
A new kit supply deal United is currently negotiating will be a barometer of the commercial appeal of the club.
The club is talking to Nike and rival sportswear companies about a new kit supply deal to replace a long-standing agreement with the US company that expires next year.
United generated revenue of £38 million from the Nike agreement in 2012-13, their last season under Alex Ferguson, who retired last May as Britain’s most successful soccer manager and has proved such a hard act to follow.
The club’s forecasts for 2013-14 were based in part on reaching the last eight of the Champions League so the comeback win over Olympiakos Piraeus on Wednesday had extra importance.
However, the real impact of this season’s poor form will be felt next year when United risk missing out on a place in the Champions League, worth at least €35 million.
United will also have to spend upwards of £100 million this summer to strengthen an ageing squad that has failed to match domestic rivals Manchester City, Chelsea, Arsenal and Liverpool this year.
It is timely that a new shirt sponsorship deal with GM’s Chevrolet will begin in full from next season, generating a world record $559 million over seven years.
United also have the option of raising additional cash through share sales after floating around 10 per cent of the club in New York two years ago.
The club still easily outscores English rivals in generating revenue and believes it can fund rebuilding out of cash flow.
United got a vote of confidence from a surprise source when it was revealed last week that US investment group Baron Capital had built up a stake of around 5.8 perc ent by buying up shares on the market.
Baron describes itself as a long-term investor in growth businesses and its investment has helped support shares which traded at $15.84 on Thursday, valuing the club at around $2.6 billion.
The mood around the club was perhaps best summed up by United fan Cesar Granda who watched the game in the Manchester bar in Manhattan with around 50 other New York-based supporters.
“We can breathe a little easier tonight,” he said, a view certain to be echoed by manager Moyes, the Glazers and the club’s commercial department.