Why Manchester United have a cash problem

This is something I read about in Athletic, and as a United fan I'm interested in their financial position.

Summary

Manchester United’s cash struggles stem from years of financial mismanagement, excessive transfer spending, and mounting debts. Despite recent injections of funds, such as Sir Jim Ratcliffe’s £79m investment, United’s cash reserves remain insufficient to support their ambitions without significant borrowing.

The club’s £149.6m bank balance as of September 2024 masks deeper issues. Much of this cash originates from loans and Ratcliffe’s investment, earmarked for infrastructure upgrades at Old Trafford and Carrington. Additionally, United owe £319m in transfer instalments, with £154m due within a year. Servicing these obligations while maintaining transfer activity creates financial strain.

Operating cash flow has plummeted since the pandemic, falling from £264m pre-Covid to less than half in recent years. Meanwhile, United’s £1.3bn net transfer spending over the past decade has failed to yield consistent Champions League revenues. Compounding this are £36m annual interest payments on debt from the Glazers’ leveraged buyout and £166m in shareholder dividends paid over ten years.

United’s reliance on short-term credit, now £230m, highlights unsustainable spending practices. To stabilise finances, the club must cut costs, sell players, and comply with spending regulations like the Premier League’s Profit and Sustainability Rules. Years of unchecked spending without on-field success are now catching up.

Key takeaways

1. Heavy Debt Burden and Interest Payments: Manchester United faces significant financial strain due to debts from the Glazers’ leveraged buyout, with £36m paid annually in interest. This debt, combined with £166m in dividends paid over a decade, has drained resources that could have been reinvested in the club.

2. Unsustainable Transfer Spending: Over the past decade, United has spent £1.3bn on transfers but failed to generate consistent Champions League revenue. They owe £319m in transfer instalments, with £154m due within a year, further limiting cash flow for new signings.

3. Declining Operating Cash Flow: Pre-pandemic, United’s operating cash flow was £264m, but it has fallen sharply since, reflecting inefficiencies in generating revenue from day-to-day operations. The Covid-19 pandemic exacerbated this decline, significantly impacting matchday income.

4. Reliance on Short-Term Borrowing: United’s finances heavily depend on their £300m credit facility, with £230m currently drawn. This reliance increases interest costs and highlights cash flow challenges, despite recent investments from Sir Jim Ratcliffe.

5. Need for Cost-Cutting and Player Sales: To stabilise finances, United must cut costs and offload players. Selling academy-trained players like Alejandro Garnacho could help meet spending rules, as their sale prices represent pure profit in accounting terms. Compliance with financial regulations now informs most club decisions.

How does it compare to Barcelona?

Both Manchester United and FC Barcelona have encountered significant financial difficulties in recent years, though their challenges stem from different sources. Barcelona's financial woes are more recent but severe. As of June 30, 2023, the club reported liabilities totaling €2.7 billion, encompassing both short- and long-term debts. This massive debt accumulation has been attributed to high player salaries, costly transfers, and the impact of the COVID-19 pandemic. (Source)

Despite generating substantial revenues, Barcelona has struggled with operating income. In the years 2018, 2019, and 2020, the club reported a total net loss of over €430 million, compared to a net profit of €29 million in the preceding four years. The pandemic exacerbated these issues, with a 14% revenue drop to €729 million in 2020. (Source)

The club has engaged in various financial maneuvers, such as selling future revenue streams, to manage short-term liquidity needs. While these strategies have provided temporary relief, they have also raised concerns about long-term financial sustainability. (Source)

In summary, while both clubs face significant financial challenges, Manchester United's issues are rooted in long-standing debt and financial management practices, whereas FC Barcelona's problems have escalated more recently due to high spending and the pandemic's impact.