Moyes Moves Millions for Manchester United

Yesterday, Manchester United (NYSE: MANU) ended former Manager David Moyes’ tenure at the club after less than a year in charge.  The club’s decision was announced shortly after Sunday’s 2-0 loss at Goodison Park to Everton, a result that rendered Champions League qualification mathematically impossible, and a pass to the Europa League complex.  Consequently, Moyes’ exit drove the club’s stock price up about 6%.

For United, perhaps the biggest blow financially is the lack of Champions League soccer in the upcoming year.  Deloitte estimates that the club stands to lose out on about £50M ($84.1M) by failing to qualify for the competition – approximately 14% of their 2012 / 2013 revenue.  UEFA money aside, not being in the Champions League is a significant financial blow on the global stage; it’s a rising tide for every aspect of the club’s reach, boosting jersey sales in the marketplace, attracting top talent in the game, and in every aspect maintaining their image as one of the biggest clubs in the world.  The simplest way to quantify it might be £50M, but the true value and importance of the Champions League for United is radically greater than that.  Their immediate reentry is absolutely critical and of the highest priority for the club’s financial standing.

Marouane Fellaini poses with David Moyes after signing for Manchester United. Photo courtesy of the Mirror.

Marouane Fellaini poses with David Moyes after signing for Manchester United. Photo courtesy of the Mirror.

To build perspective, if United end up qualifying for the Europa League and winning the entire competition, they would stand to gain roughly £10M ($16.8M), based on Chelsea’s winnings last year.  Considering the amounts, it might benefit the club to not qualify for the Europa League, and focus mainly on Champions League qualification, which would inherently include improved domestic form and a revitalization of the locker room and squad – noted that this is no small task.  However, a solid 2015/2016 Champions League run could see United easily double their potential maximum Europa League earnings  for 2014/2015 (if they qualify).  The club won’t be throwing in the towel for their remaining matches, though financially speaking, it might make the most sense.

With all this fresh in mind and becoming official after United’s match on Sunday, one might think Manchester United’s stock might be in for a rough week on Wall Street.  So far, that hasn’t been the case, apparently thanks almost entirely to the club parting ways with David Moyes.  The share price’s activity is a bit confusing.  At first, you might expect a drop in price to trend through the week following the Champions League news, but given Manchester United’s expected absence from the Champions League next season, it’s likely this gap in revenue has been baked into the stock’s price for a while.  Since it’s clear that Moyes’ days have been numbered for some time now, it’s odd that the stock closed up 6%, given the same expected nature of the event.  Both announcements were a matter of time, but yielded very different results.  Regardless, Tuesday’s trading saw the club’s value, or market capitalization (shares outstanding x share price), grow to $3.08B – an approximately $177M increase from the previous day’s close.  It’s quite the impressive spike based on news that the average soccer fan on any continent knew was likely to happen.

Photo courtesy Google Finance

Photo courtesy of Google Finance

Fortunately for United, they’re expected to sign a historically lucrative deal with Nike who would for ten years outfit the club for a fee last expected to be in a world-record $1B dollar range.  That, supplemented by a Chevrolet contract, which will put an additional $559M in United’s pocket over the course of 7 years, will help soften the blow that a year without Champions League will mean to the club.  This cash coming into the club is good, because getting back into Europe could be expensive.  This is speculation, but with rumors of an estimated £150M ($252.3M) requested budget to rebuild the squad, then paying existing and acquired player wages, and Moyes’ exit compensation, things will get pricey.  Factor in a premium the club might have to pay to bring top talent to the club without the promise of the Champions League, and costs continue to climb.

The next two years will prove to be critical for United in determining how much of an effect this past season will have on future operations.  If they are able to right the course, a year without Champions League will by no means be insurmountable from the perspective of both revenue and status.  The aforementioned sponsorship contracts are for astronomical sums, unprecedented in the soccer industry, which should keep the club competitive and towards the top of the Deloitte Money League. Of critical importance is the upcoming season, if during which United can regain their Champions League spot, they can make 2013/2014 a small slip-up in their otherwise proud history.

 

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Reporting on the business side of the world's game.