Manchester United: What's the Value of This World-Wide Brand?

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Manchester United: What's the Value of This World-Wide Brand? . Manchester United: What’s the value of this world-wide brand? Introduction Manchester United has set the standard for financial success in world football. At a time where money plays a pivotal role in athletic success for football clubs, due to the sky rocketing player wages and spiraling transfer prices, the way a club manages its finances will determine how successful a club is on many levels. A key ingredient of a successful strategy in modern soccer rests on the ability to structure the club as a company that sees itself as a content provider. How did Manchester United strive above other soccer clubs in the world to become one of the world’s most successful sporting brands? And what is the value of the Manchester United brand? The Roots of Manchester United Manchester United (“ManUnited” as the fans like to call it) was founded in 1878 by workers of the Lancashire railway company. At the beginning, the club struggled to survive, and in 1902 it nearly went bankrupt, and had to be saved by a last minute intervention of a local businessman that kept the club alive. The history of the club is full of successes, especially in the 1950’s, the 1960’s and the 1990’s, but also of moments of doubt and failure. Today, the club remains the best-supported club in England. Its venue, Old Trafford, comfortably seats nearly 70,000 people. The stadium, which has been renovated and modernized in the 1990’s, is a symbol for a football club and none is better than Old Trafford, also known as the “Theatre of Dreams”. This name was given by perhaps the greatest player who ever wore the Manchester United uniform, Sir Bobby Charlton. The new stadium was part of the whole remodeling experienced by the club during the 1990s. When Alex Ferguson took over as manager of the team in 1986, he began a new era for Manchester United. He took the club back up to the British First Division and won the inaugural season of the Premier League in 1993. Since Ferguson’s takeover, ManUnited has had much success on the field, becoming the most respected club in England and maybe even the world. Table 1 shows the football club’s honors throughout its centenary history. This case was written by Antonio S. Mello, Lourenço Sampaio e Mello and Rasti Martos at the University of Wisconsin - Madison as a basis for class discussion. Copyright © 2006 by Antonio S. Mello. All rights reserved. To request permission to use and reproduce materials, e-mail to [email protected]. 1 Table 1 – Manchester United Football Club Honors European Champions Clubs Cup 1968,1999 European Cup Winners Cup 1991 FA Premier League 1993, 1994, 1996, 1997, 1999, 2000, 2001, 2003 Football League Division One 1908, 1911, 1952, 1956, 1957, 1965, 1967 FA Challenge Cup 1909, 1948, 1963, 1977, 1983, 1985, 1990, 1994, 1996, 1999 Football League Cup 1992, 2006 Intercontinental Cup 1999 UEFA Super Cup 1991 FA Charity Shield 1908, 1911, 1952, 1956, 1957, 1965, 1967, 1977, 1983, 1990, 1993, 1994, 1996, 1997 Origins of the Profit The turnover that Manchester United makes does not only come from matchday earnings from Old Trafford or from the media, it also comes from a great amount of commercial activities and from sponsors. From 1993 to 2003, Manchester United’s revenue increased from £25.2 million and £4.2 million pre-tax profit to a staggering £173 million and £39.3 million of pre-tax profit. Most of this turnover comes from matchday, which represents earnings of 41%, as opposed to the 32% of media and 27% of commercials. Since 41% of the earnings come from match day receipts, it illustrates that success on the field is vital to keep the fans interested. Old Trafford fills up regularly, but it makes it much easier for the fans to stay interested if the club is performing well on the playing pitch. Especially important to the club are the Champions League games (see page 6), where not only each game is important due to the nature of the competition, which includes the best clubs across Europe, but also because the tickets are more expensive and the prizes are high. Playing well in Europe is also critical to promote the name of the club cross borders. Manchester United saw a 20 per cent drop in operating profit from £58.3m to £46m for the 11 months to 30 June 2005 from 2004. Group turnover fell from £169m to £157.2m, and pre-tax profits fell from £28m to £10.7m. Media revenues fell with the club's share of Champions League television money falling by £7.7m and BSkyB revenue falling by £7.5m (Table 2). Financial results are unlikely to improve this season after the club failed to make the knockout stage of the Champions' League. However, Chief Executive David Gill does not predict profits over £50m in 2005. Table 2 – Breakdown of Manchester United turnover 1997-2005 1997 2001 2002 2003 2004 2005 £ m % £ m % £ m % £ m % £ m % £ m % Matchday 30.1 34 51.8 40 56.3 38 70.6 41 61.2 36 66.2 42 Media 12.5 14 31.2 24 51.9 36 56.2 32 62.5 37 48.4 31 Commercial 45.3 52 46.6 36 37.9 26 46.2 27 45.3 27 42.4 27 Total 87.9 100 129.6 100 146.1 100 173.0 100 169.0 100 157.1 100 *Source-Manchester United Annual Reports (1997-2005) 2 Matchday Table 3 shows matchday receipts, which have grown rapidly in 2003. This is mostly because since then Old Trafford has been remodeled and increased to a seating capacity of 67,700, at a price of £150 million. Due to the fact that Manchester United games regularly sell out, this adds up to an enormous increase in matchday ticket receipts. The seating capacity for Old Trafford also has a great impact because of other events as well. Its colossal seating capacity allows the venue to be host to many rock concerts, international matches, FA Cup semi-finals or finals, and or special football events, such as the 2003 UEFA Champions League final match. Overall, the matchday receipts for Old Trafford in 2003 amounted to £70.2 million. Old Trafford is currently going through an addition of 8,000 extra seats, which will be available from the end of 2007, and this is expected to boost revenues by about £2m a game. The price of expanding Old Trafford is estimated to be paid off in a span between 2.5 and 3 years. Table 3 – Tickets Sold by Type/Matchday Receipts 2003 Number of Seats Price range (inc VAT) Season tickets Standard 41,000 £437-513 Executive/Box 5,500 £1,088-4,000 Match Day Receipts Visiting club 3,000 £21 Hospitality Packages 1,700 £55-150 Sponsor/complimentary 1,000 NA Other (members) 14,500 £18-27 Total 66,700 *Source – UBS Warburg *Includes all home games but excludes 1000 tickets for promotional purposes. Executive Boxes sell at a higher premium than regular tickets and generate an estimated £12.5 million of revenue for the club. These tickets are good for all home league matches to be viewed. Furthermore, Manchester United games held at Old Trafford sell very early, and about 50% of all tickets are executive boxes or season ticket holders. This means around half of the money for home games comes in before the season even starts. This creates a cash reservoir that Manchester United can use in order to manage the financial situation much more at ease. In addition, Manchester United has excellent conditions for its fans and fantastic catering facilities. The club prepares about 100,000 meals per match day, which generates close to £4 million in revenue, not to mention on non-match days where the catering facilities are available that generate another £3 million in revenue per year. Table 4 – Top 30 English Football Clubs by Attendance - Seasons 2002/03 to 2004/05 Club Average 04/05 Average 03/04 Average 02/03 Manchester United 67,750 67,640 67,602 Newcastle United 51,845 51,965 51,923 Manchester City 45,190 46,835 34,565 Liverpool 42,585 42,705 43,243 Chelsea 41,870 41,235 39,784 3 Arsenal♣ 37,980 38,080 38,042 Aston Villa 37,355 36,625 34,975 Everton 36,835 38,835 38,491 Tottenham Hotspur 35,925 34,875 35,897 Middlesbrough 32,010 30,400 31,025 Southampton 30,610 31,700 30,680 Leeds United 29,205 36,665 39,120 Sunderland 28,820 27,120 39,698 Birmingham City 28,760 29,075 28,831 West Ham United 27,405 31,165 34,432 Wolverhampton Wanderers 26,620 28,875 25,745 Charlton Athletic 26,405 26,295 26,256 Bolton Wanderers 26,005 26,795 25,017 West Bromwich Albion 25,985 24,765 26,731 Ipswich Town 25,650 24,520 25,455 Derby County 25,220 22,330 25,470 Norwich City 24,350 18,989 20,353 Leicester City 24,135 30,985 29,242 Crystal Palace 24,105 17,345 16,867 Nottingham Forest 23,565 24,750 24,437 Sheffield Wednesday 23,100 22,335 20,327 Blackburn Rovers 22,315 24,375 26,226 Portsmouth 20,070 20,110 18,934 Fulham 19,835 16,340 16,707 Sheffield United 19,595 21,645 18,069 * Domestic league matches only ♣ Arsenal will have a 60,000 capacity Stadium from 06/07 season * Source – footballeconomy.com Media Media plays a significant role in the generation of revenues for Manchester United.
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