As Manchester United’s executive vice-chairman, Ed Woodward, addressed the club's investors on Thursday to discuss the club’s latest set of financial results, the numbers sounded bleak.
Over a 40 per cent increase in net debt, revenues down and an estimated £23 million ($28m) already lost due to Covid-19 made up the headlines, and the worst is yet to come. Games behind closed doors, the club’s shop and museum remaining closed and a huge reduction in broadcast revenue will ensure the next quarter's results have a similarly negative impact.
But is it as bad as it sounds?
As Woodward highlighted in the call, United are facing “one of the most testing and extraordinary periods” in their 142-year history. “We must recognise that this crisis will not disappear overnight, and that the world that emerges will be different from how it was before,” he said.
Testing times are ahead, and not just for one of the world's biggest clubs. Further down the footballing pyramid it is predicted that some clubs will not survive the financial impact brought about by the pandemic, and the estimated £23m loss - an amount that will continue to rise the longer games are not played - will be replicated across all the other Premier League clubs.
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“The lack of Champions League football and the impact of Covid-19 has been seen in United’s latest financial results. They’re poorer than they would be normally but they’re not horrendous,” football finance expert Kieran Maguire told Goal. “The fourth quarter results will be pretty horrendous.
“They’ve still got a huge wage bill to pay and without matches there won’t be as much money coming in, so they will be expecting a big deterioration in the fourth quarter.”
The real impact of the pandemic will be seen in the next financial results, released in another three months, but there is confidence at United that their business model and strong commercial partnerships should, in some way, help them to weather the storm.
“No question, the economic ramifications from this global pandemic will continue to resonate for years to come, but we remain optimistic about the long-term outlook for the sponsorship business and our ability to remain a leader within the market,” Richard Arnold, the club’s group managing director, said.
The £127.4m ($155m) increase in the club's debt is not understood to be a cause for concern at Old Trafford. Goal has learned that the amount is so high due to their recent high-profile signings, with Leicester City having demanded money up front for the £80m transfer of Harry Maguire in the summer of 2019 while some instalments have already been paid to Sporting CP since Bruno Fernandes' arrival in January.
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It is understood that the figure is not going to have a detrimental effect on any potential transfer activity in the future, with the financial results showing the club have £90m ($110m) of cash available, plus an additional £150m ($183m) in credit reserves. Money is available for the transfer window, but, as Woodward warned, they are not expecting “business as usual".
United’s cash balance will put them in a strong negotiating position when the transfer window does open, and it is understood that there is hope the club will still be active whenever deals can be agreed again. But any expectations that they will be spending hundreds of millions of pounds are thought to be unrealistic.
And while United's debt is not cause for concern yet, the impact of non-participation in the Champions League, which is also reflected in the quarter-three results, should be.
United’s failure to qualify for Europe's elite club competition this season has seen a hit on revenue, although there has been a slight decrease in player wages due to Champions League clauses in their contracts. That revenue hit will only get worse if they fail to qualify again for 2020-21.
Their contract with kit supplier Adidas, for example, contains a clause that means failure to qualify for the Champions League for a second successive season would see a reduction in income of 30% - an amount that is estimated at around £22m ($27m). Factor that into another year of lost television revenue as well as the hit it will give their overall brand, and the issues would begin to mount up.
For now, United are also set to miss out on around £12m ($15m) as they are unable to participate in an overseas pre-season tour this summer, and overall revenue will continue to be hit while the pandemic is at large. The final numbers will make for even bleaker reading than they do right now.
And while a lot of that is out of the club’s control, a positive ending to the season on the pitch, culminating in securing Champions League football, puts them in a far stronger position than if they miss out again.
With Manchester City's appeal against their two-year Champions League ban set to be heard by the Court of Arbitration for Sport (CAS) between June 8-10, United may well know whether a fifth of fourth-placed finish will be enough for Champions League qualification when they eventually return to action. Of course, they could still win the Europa League too, and as such they are well placed to book their spot.
Off the field, United’s commercial deals mean they find themselves in a more stable position than a lot of their rivals. Arnold described the support given to them from their partners during these uncertain times as “phenomenal”, and commercial income this quarter has increased.
And while those deals are key to United’s finances going forward, it is performances on the pitch in the final few games of the season - should they go ahead as planned - that will determine the fortunes of both the team and the balance sheets going forward.