Recently the breaking news hit football-related websites - Man City broke 500 million in revenues, while increasing net profit by 1000%! The news were supported by numerous comments of Man City fans, noting that “blue moon is coming, red devils be aware!”
I had long standing plans to dig into Man City finances (but didn’t have enough time), so after these news hit the fan, I didn’t have excuses anymore.
That said, let’s get going!
This year Man City reported first among top 6 of the EPL. This is the 10th year under sheikhs, so annual report is even more fancy and interactive, supported by numerous stats for past decade and of course lost of records rewritten last year under Pep.
My analysis starts with review of profit & loss :
Income generously increased by 63m (+13%!), operating loss decreased by 8m, net profit increased by 9m. Worth noting, that net profit was recorded thanks to gain on sales of players (+39 m). Without this factor Man City’s net loss would be -29m. As such, profitability of the club is pretty much a result of accounting of the player’s disposals. Just to put into context - Man City is profitable thanks to sales of non-key players like Boni, Iheanacho, Nasri (yes, he was sold last year!), Kolarov and couple of other no-names. Yet, these transactions result in net gain of 39 million, thanks to the nearly zero net book value of these players. There’s no need to sell key players to satisfy UEFA financial fair play rules.
Now let’s review club’s income structure:
Majority of income (46%) is generated by other commercial activities. Even though total revenues increased by 13% during last year, the weight of this revenue stream is stable at 46% in both years. You’ll see why this matters in a little while.
Other revenue streams (matchday, broadcasting) slightly increased thanks to the longer Champions League campaign.
It should be noted that City’s matchday revenue is only 5th of top 6 EPL clubs, and will probably drop to 6th once Tottenham reports revenues for 2017-2018 (last season Spurs spent on Wembley, which is way bigger than White Hart Lane). Worth noting that United’s matchday is 100% bigger City’s: domestically City is unable to beat rivals in terms of the revenue.
City, however, is pretty close to United in terms of commercial revenues. Actually, this is the biggest differential, which puts blue moon to the second place revenue-wise among EPL top 6.
Generally, commercial revenues include all kinds of sales where club’s brand is involved. Known marked information on City commercial deals are the following:
- title deal with Etihad, which accounts for annual 40m payment during 2012 - 2022. Market whispers that City is currently in talks with Etihad on doubling of this amount starting from next year, but no actual details are available.
- kit deal wit Nike, which accounts for 12-20m annually for 2012 - 2019. This deal will be replaced next year (Puma, expected 50 million for 2020 - 2025).
- other sponsor deals (Nissan, SAP, Nexen Tire, Marathonbet, Amazon). Details of these deals are not disclosed, however it is rumoured that Amazon paid one-off 10m for documentary “All or nothing”.
So, official data and unofficial rumors sums up to around 60-70 million from sponsor deals. The remaining 162m is a grey area. Generally, there’s no way to get any details on this information, as clubs are not keen to disclose details of commercial deals (except for public companies like Man United, where this is required by stock exchange rules). As such I’ll use certain assumptions in further digging.
Of top 6, only United and Arsenal disclose revenue from retail and merchandising. Usually this revenue stream includes sales of branded material (other than official kits), stadium-relates sales (beer & pie, you name it), short-term rentals of the stadium for concerts etc.
As seen, the share of this stream within commercial revenue is different: United accounts for 39% of its total, whereas Arsenal’s share is 22%. Let's assume, Man City’s share is in the middle (30%) - this means ~70 million from merchandise. In my view, this is very generous assumption, as to me Arsenal is much more successful in commerce, but who knows, what if it’s just local Manchester anomaly and people there spend much more for merchandise than in London?
Anyways, even with such generous assumptions, City should get ~100 million from “other sponsors / commercial activity”. That’s a huge amount. Okay, there was one-off payment from Amazon (-10m), let's assume another 10-15m collectively from other sponsors (Nissan, SAP, Nexen Tire, Marathonbet), and 5-7m from commercial tours to the US in summer. What’s the nature of remaining 70 million? The amount is huge, so there inevitable would be leaks to the general public of such “angel investor”...
Simple explanation (Occam’s razor forever!) is that remaining piece of revenues (~70m) is a direct cash infusion from shareholders under some “grey” sponsorship agreement, which makes it revenue (not equity). Adding annual 40m from Etihad (which on paper is an independent company, but we know that nothing in Emirates is independent from sheikhs. That’s why the contract was questionable in terms of fairness back in 2012 when it was signed) will result in ~110m (20% of total revenues!) of "internal" financing which is needed to keep the blue moon above waterline.
Does this make it a sustainable and independent business? I guess this question is rhetoric. As 10 years ago, City’s financial stability depends on sheikh’s money. Each transfer in will require even more: this year’s transfer campaign (will be in next year’s accounts) already costed City 42m net cash (Mahrez in, couple of no-names out), and more coming, as City needs to extend contracts (or buy replacement) for Kompany (contract expires in 2019), Fernandinho, David Silva, Gundogan, Sterling (all expire in 2020). Given current trend, these contracts will be more expensive (Sterling is rumoured requesting +50% to his current contract, other will inevitably follow), which will put additional pressure on revenues. So unless City starts to be very successful in Champions League (like winning 2-3 tournaments in a row), which will boost matchday and broadcasting, the only source to finance increased expenses is shareholders funds, given that EPL TV deals stopped its enormous growth and is fixed on current level till at least 2022.
Man City is still a toy in sheikh’s hands. Haters would still say “money bag”
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