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For football clubs, financial and on-pitch performance have a strong correlation. For Manchester United, both have been on the way down for a while.
At 16th place in the Premier League — with only Tottenham Hotspur between themselves and the teams set for relegation — United’s men’s first team are certain to finish in the bottom half of English football’s top division for the first time since 1990, and will register their worst points return of the Premier League era.
The club’s best hope of saving face this season comes tomorrow, when they face fellow “Big Six” EPL flop Spurs in the Europa League final. But by a bond-doc quirk, winning Wednesday’s game could — but, FT Alphaville must heavily stress, is extremely unlikely to — cost United the best part of a billion pounds.
As a cause and a consequence of their dismal on-field performances, the United’s finances are in tatters: the club has posted consecutive losses totalling over £370mn in the last five years.
In an attempt to steady the ship, shareholder Sir Jim Ratcliffe has put a freeze on free lunches for staff and slashed the salaries of club legends who serve as ambassadors. Seemingly accepting the inevitability of its financial performance, the club has swapped out the “(loss)/profit for the year” column in its annual results for a simpler “loss for the year”.
The club is trying to boost its finances by improving the team’s results, with the main aim being to qualify for the Uefa Champions League — football’s most lucrative competition. After a poor league performance this year — falling well short of the top five finish needed to qualify from the competition in the traditional way — United’s UCL hopes hinge on winning the final of the Europa League, the competition’s little brother, in Bilbao tomorrow night. The winner gets an automatic pass to the Champions League next season.
But though qualification could earn United millions in broadcasting revenue and winnings, giving its finances a much-needed boost, the club chases the Champions League dream at its own risk. Being good at football could, IN THEORY, cost Manchester United a lot of money.
To see why, let’s hit the bond docs.
Like many companies, United relies upon multiple loans and flexible credit facilities that it can draw upon to fund projects or to make up shortfalls. As of December, these include £337.7mn in outstanding bonds maturing in 2027, a £178.1mn secured term loan from the Bank of America Merrill Lynch due for repayment in 2029, a £150mn revolving credit facility of which £130mn is in use, £50mn that has been drawn from a revolving credit facility with a £75mn limit, and another £30mn outstanding from a £45mn capped facility.
Some of these bonds carry an unconventional covenant, which states that United must maintain rolling 12-month ebitda (earnings before interest, tax, depreciation and amortisation) of at least £65mn to avoid triggering an event of default — at which point its lenders could force the repayment of £725.7mn of borrowings. Unless, that is, United fails to qualify for the Champions League.
As United’s annual report spells out:
We are able to claim certain dispensations from complying with the consolidated EBITDA floor including up to twice (in non-consecutive financial years) during the life of the senior secured notes if we fail to qualify for the first round group stages (or its equivalent from time to time) of the Champions League.
In other words, being too good at football while having too poor finances could mean the club is suddenly forced to repay hundreds of millions in loans.
Let’s offer some perspective. Although United has consistently reported bottom-line losses over the past five years (a total of £371mn, averaging £74.2mn per year) its ebitda — after a bunch of adjustments worth hundreds of millions of pounds — has stayed clear of that £65mn threshold.
The closest it has come was in 2022, when its ebitda reached just £81mn. It was saved that year by a £24mn top-up from an exceptional item titled “compensation for loss of office”, defined as:
compensation paid for loss of office relates to amounts payable to former men’s first team managers, certain members of the playing, coaching and scouting staff and certain non-playing staff
Even when its losses surpassed £110mn last year, ebitda figures were kept above £65mn in part by almost £200mn of amortisation, owing to the “capitalized costs associated with the acquisition of players’ and key football management staff registrations”.
This season the club is likely to once again achieve a financial performance that makes qualification the UCL desirable, expecting adjusted EBITDA guidance to be at the high end of its range of £145mn to £160mn. That’s a long, long way north of covenant-breach territory.
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So far north, in fact, that we can say with almost total confidence that — in a season where almost everything has gone wrong for United — they will be fine on this front. A source close to United assured FTAV that they consider Champions League qualification to be in the club’s financial interests.
But if the guidance is wildly wrong — and revenues have taken a sufficiently severe knock this season (say, from people not rushing out to buy Hojlund or Onana shirts) to drop beneath £65mn — winning Wednesday’s game might, perversely, prove to be very expensive for United.
In that case, it would do well to stay bad at football.