November has been an extremely busy month with several news stories hitting the headlines and capturing the attention of those interested in football. This is especially in the case in the north west of England, where the focus of this blog lies. From Manchester City’s financial results for the year ended 30 June 2022 to the controversial way in which Cristiano Ronaldo has highlighted concerns about Manchester United’s business model. Is Manchester red or blue? We take a look at what has gone on in November and we there is still a good chunk of the month, including the FIFA World Cup to come!

Is Manchester red or blue?

Manchester City’s financial results

in 2022, Manchester City have released two sets of financial statements and annual reports, firstly in January 2022 for the year ended 30 June 2021 and secondly in November 2022 for the year ended 30 June 2022.

Timing is everything – it is normal for clubs to pick their time to release financial information in the form of their annual report, unless obligated to do so by their status. Manchester City FC is a privately owned limited company. It is owned by City Football Group, the parent of multiple clubs around the world. It must submit financial statements to Companies House 9 months after their year end and has no obligation to publicly release information before that deadline, being 31 March 2023 for the latest financial statements. So before opening the annual report, the timing of the release suggests it makes for positive reading.

The dominance of blue over red

Once you get into the annual report for 2021/22 you will see that this assumption is correct. Record club revenues of £613 million and profits of £41.7 million sit alongside a report that states the club has the second highest brand value (according to Brand Finance) of €1.3 billion, behind Real Madrid at €1.5 billion. In summary, this is a club that is not only dominating on the pitch but becoming a serious global contender off it.

I was fortunate enough to grow in Manchester watching the red and blue rivals battle it out on the pitch. In the early days of the Premier League, Sir Alex Ferguson built a team that dominated multiple competitions on a regular basis. Primarily in the Premier League but also in the UEFA Champions League and domestic cups. Who could forget the treble winning side of of 1998/99 who won the Premier League, Champions League and The FA Cup?

What was remarkable for me watching this side and being able to look back with the knowledge I have today is the balance of on-pitch performance, with financial success. Something that Sir Alex and the organisation mastered, putting the team first, resulting in becoming consistent and leading to the ability to sell high-profile players at substantial profits. These profits, being re-invested the in the squad, led to further on-pitch success and the formula seemed almost magical. This would surely be hard to replicate.

Photo: Nigel Mspia, Unsplash

Hard to replicate, until now

Pep Guardiola and the Manchester City team that sits behind him were only a few years ago known to be “net spenders” in the summer transfer window. But this net summer spend has declined from £104.5 million in the summer of 2020, to £79.8 million in 2021 to a net income of of £35 million in summer 2022. For those that don’t know – these figures are disclosed in the notes to the financial statements. Towards the back, under “events after the balance sheet date”. The profits or losses relating to the transactions quoted above are reported a year in arrears. By the time financial statements are released, they are always out of date but they do include some insight into what happened in the time between the club’s year end and the time of signing the financial statements. This will almost always include the summer transfer window.

But what does this mean? It means, quite simply, that the Manchester City and wider City Football Group model is working. So far this season, City have sold some significant individual players such as Raheem Sterling, Gabriel Jesus and Oleksandr Zinchenko. And to Premier League rivals. Generating substantial sums of cash and still being able to compete at the top of the league. What is interesting is that Manchester City have traded player registrations with two of the “Big 6” clubs which is a model that Manchester United tended to steer clear of.

This is coupled with incoming signings, most notably, Erling Haaland amongst others. The big shift is that the historical net spend has turned into income. If Manchester City keep this up, this model will lead to further dominance in the years to come.

Photo: Travel Nomades, Unsplash

The key to football finance success

Football performance is now at the point where the world admires the on-pitch success of the club. This increases revenues from broadcast deals with consistent continental and domestic success. In turn, the club will continue to build up on an ever expanding list of commercial partners. Match day income will continue to increase as the club attracts more fans. The club will no doubt also expand the stadium and provides the best level of hospitality in sport. The final piece of the financial jigsaw puzzle is player trading, which now seems to have turned a corner.

The red side of Manchester

Manchester City have invested into several parts of the business, encouraged by the UEFA Financial Fair Play and Premier League Profitability and Sustainability rules. Most notably, their academy set up, both tangible and intangible. Physical infrastructure, players and staff. A training ground, including a “mini-stadium”, which I once called “the office” that cost £160 million in total. The project helped to regenerate East Manchester but is now producing players able to break into the first team or be sold to other clubs at a profit.

On the other hand, it has been noted by fans for some time and now the most (in)famous football player in the world that Manchester United have failed to invest in their stadium, the training facilities and their staff since he left. The current owners have been treating Manchester United like a business, as opposed to a football club. Leveraging the asset, passing debt and interest costs onto the club. Extracting value through dividends, reducing cash reserves. All this would be seen to be normal for a business outside of the football industry.

But as we know, the most important stakeholders beyond the shareholders, the fans, don’t want to see the profits of their club be distributed to owners. In order to promote long-term football success, re-investment is key. Facilities need to be upgraded, technology moves on, scientific research is out-dated. The lack of investment and change in club culture since Sir Alex stepped down means the club is almost unrecognisable. To fans and past/present players alike.

What does the future hold?

Is there a way back for Manchester United? Of course. Football success is usually cyclical. But what the club needs a coherent strategy to rebuild the success seen in the past. Investment in physical infrastructure, intangible assets, staff and working styles that promotes a culture of “club first”. United may have look towards the blue half of the city for inspiration. Where the shoes was probably on the other foot a decade before.

It is interesting how critical the financial side of football has become. To underpin a club’s football performance, through long term investment as opposed to short term financial gain. It is going to take a long time to unpick the decisions made by the current ownership. But Manchester United will have ambitions to catch up with the current leaders in Manchester. Both on and off the pitch.

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