Manchester United’s dip in form poses financial risks

Manchester United is facing a challenging battle both on and off the pitch. The team have to best greek champions Olympiacos after the first leg ended 2-0, so that they qualify further in the Champions League, with more problems coming from their poor league form and 11 points distance from the fourth spot which grants the chance to qualify for the Europe’s elite competition. On the other hand are higher wage costs, with star man Wayne Rooney signing a new 85 million pound contract ($142 million).


The three-time European Cup winners who are owned by the Glazer family are looking at missing the Champions League for the first time in 19 years, which would damage their commercial and value and share prices. Last year they went out in the round of 16, earning approximately 30 million pounds directly from UEFA revenue, and they are looking at the same returns again this year. But there are larger sums and implications at stake. Simon Chadwick, a professor of sports business at the Coventry University in the U.K. Commented that “There are more than 100 million pounds to be lost here, obviously on the premise that they in the Champions League, but even a modest run in it can generate 50 million pounds or more.”


The news of Rooney’s new deal, which saw his salary reach 300,000 pounds a week from a previous level of 250,000 pounds has put pressure on the financial outlook with the length of the contract reaching 2019, when the player will be 33. “It’s possible they have to pay him more exactly because they might not get into the Champions League,” said Carsted Thode, a consultant who previously worked for United before te Glazer takeover in 2005. “The top class players demand that they play in the elite competition and maybe United are not guaranteed that any more.”


Salaries of other players are also being noticed by investors and analyst Joseph Hovorka from Raymond James & Associates cited “an upward movement of total player wages” as a reason for a downgrade to “market perform” from “market outperform” on Feb. 14. Staff costs rose 17% to 51.6 million pounds in the second quarter compared to the earlier period, “mainly due to player acquisitions and renegotiated contracts,” the stated earlier in the month. The Vice Chairman of the club Ed Woodward publicly promised more player purchases as the club tries to reverse their poor form.


This downward movement comes after legendary manager Alex Ferguson left the managerial position after 26 years and was replaced by David Moyes. They have been knocked out of both cup competitions and with eight losses stand at seventh position in the Premier League.


Their share price on the New York stock exchange saw little movement on Friday, standing at $14.98 but their share prices has been slipping, even after they posted record sales of 122.9 million pounds in the last quarter, which includes an impressive 39% jump in income from sponsorships. For December the stock price has tumbled 15%.


United could still qualify for the second UEFA competition, the Europa League, but that brings in far less revenue than the coveted Champions League. But regardless of the gloomy predictions, Andrew Walsh from Cologne-based researcher Repucom says that missing the top competition “wouldn’t be catastrophic as the team won’t lose a huge part its fan base overnight, so the brand value, revenue, merchandise and licensing profits won’t be affected.”


United still is the third most valuable sports team brand in the world, as stated in Forbes magazine’s annual standings and those 19 years of Champions League presence give it a solid foundation to continue having an impact on its 659 million global fans. Nigel Currie from brandRApport, a marketing agency says “They’ve managed to profit from the global exposure that comes with the Champions League and now they have a very important transfer window ahead of them.”


Sponsorships have become a mainstay of their income with 29 million pounds in the second quarter coming solely from there. With the “scalpel approach” which Chairman Woodward has focused on, the club has managed to divide its rights into smaller geographies and categories, boosting its number of sponsors to 35. But it is a strategy that could have its deficiences, says Thode, who is now head of consulting at London based sponsorship agency Synergy. “That aggressive approach has been great at generating new deals but when it comes to the end of the contract it might prove difficult to hold them down if the club isn’t playing in the Champions League.”


Some say that even before the domestic campaigns slip this year, United didn’t keep up with the best in Europe. In he season before last, still with Ferguson at the helm, they couldn’t make it out of the group stage, which was the first sign of troubles ahead – in their last four campaigns before that, they got to three finals, winning one of them.


If they were to win the tournament this year United would be guaranteed a spot next season, regardless of their position in the Barclays Premier League, but it is an unlikely scenario with thir odds reaching 40-1 at bookmaker Ladbrokes. But it might be their only chance to play European football next year.


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