Losing streak will test Man Utd’s winning business model

Saturday, 11 January 2014 08:33 -     - {{hitsCtrl.values.hits}}

Reuters: For all Manchester United’s commercial clout, a business model built on the English soccer champions’ success on the pitch will be tested severely if the team’s slump in form extends beyond this season. United, owned by the American Glazer family, lie seventh in the English Premier League with more than half the season gone, leaving the club at risk of missing out on the lucrative UEFA Champions League for the first time since 1995. Though it could withstand the one-off loss of the 35 million euros it received from UEFA for last season’s campaign in Europe’s top club competition, a prolonged absence would have serious knock-on effects. Not least of the problems would be the threat to deals such as its retail partnership with sportswear group Nike (NKE.N), which pays United a minimum of 25 million pounds a year by virtue of the on-pitch success that drives the sale of two million replica shirts around the globe. Those sales helped to earn United an additional 12.8 million pounds from the agreement last year. And though Nike is expected to renew its deal in the next few months, the team’s recent decline could weaken the club’s bargaining position. United’s poor start to the season is the talk of offices and bars across Britain and beyond. With financial forecasts for 2013/14 based on a third-place finish in the Premier League, the club’s New York-listed shares have slid to a little more than $15 from more than $18 in May. That month marked the end of an era for United as Alex Ferguson retired as manager after winning 13 Premier League titles over two decades. Then CEO David Gill stepped down in June, opening the club to accusations of poor planning. New manager David Moyes has failed so far to produce the aura of invincibility that surrounded Ferguson. On Tuesday United suffered their third loss in as many games - the first time since 1932 that the club has begun a year with three straight defeats. “You were always going to have this transitional period, when it was not clear if United would carry on winning,” said Simon Chadwick, sports business professor at Coventry University. “But this is the nightmare scenario, as opposed to the seamless transition.” Under Ferguson, United grew into a global brand that claims more than 650 million followers. Turnover this season is forecast to reach between 420 and 430 million pounds, well ahead of Premier League rivals. Injuries to strikers Wayne Rooney and Robin van Persie have not helped United’s cause, but the ageing squad looks in desperate need of an expensive overhaul. The team’s struggles have also reignited resentment among a vocal group of fans who have never forgiven the Glazers for loading the club with debt to finance their 790 million pound takeover in 2005. “The main problem is not the choice of manager but the lack of investment in the side,” said Sean Bones, of the Manchester United Supporters Trust. “If you look at Real Madrid, Barcelona, Bayern Munich, they are supporter-owned clubs whose revenues are pumped back on to the field to improve the team.” Club insiders say that money is available and transfer targets have been identified, though rivals across Europe are reluctant to trade top players at this stage of the season. Failure to finish in the Premier League’s top four and secure a place in next season’s Champions League could compound the problem because the appeal of the competition is key to buying and retaining the world’s best players. That the club generates so much cash gives United a degree of wriggle room, says former Chelsea FC chief executive Trevor Birch, now a partner at accountancy firm BDO. More than one season out of the Champions League, however, could be the prelude to a different story. “The worry at the moment is that their current form is a portent of the potential for longer-term decline,” Birch said. Coventry University’s Chadwick, meanwhile, pointed to the travails of Liverpool. United’s great rivals dominated English soccer in the 1980s but have not won the title since 1990 and last played in the Champions League in the 2009/10 season. “As we’ve seen with Liverpool, the road back to the Champions League can be a long and difficult one,” Chadwick said, citing the pressures on revenue and recruitment that absence from the competition brings. Though United’s financial firepower will increase next season as it reaps the benefits of a $559 million seven-year shirt sponsorship deal with General Motors, a prolonged barren spell on the field would test the loyalty of far-flung fans who have helped to make the club so strong commercially. “In Cape Town, Shanghai and Seoul, you have a lot more floating voters. And what they want is success,” Chadwick said.