Manchester United (MANU:US)’s worst season since at least 1992 was underscored yesterday by the departure of coach David Moyes. As a business, the club still has few peers in soccer.
Moyes, a 50-year-old picked by fellow Scot Alex Ferguson as his successor, was replaced yesterday, four games before the end of United’s worst Premier League season. The team has lost 11 of its 34 league games under Moyes and is in seventh place, a year after winning a record 20th English title.
Off the field, United boosted sponsorship sales by 39 percent in the quarter ended Dec. 31, the most recent for which results are available. It has bigger ticket and other match-day sales than any club in the world, according to international accounting company Deloitte LLP. Moyes was less than a season into a six-year contract.
“It’s an unsettling time for the team but sales aren’t going to drop off a cliff,” Dave Chattaway, who helps compile an annual soccer club brand ranking for London-based Brand Finance Ltd., said by telephone. “Most other teams are still playing catchup.”
United is using what Executive Vice Chairman Ed Woodward calls a “scalpel, not a spade” approach to snagging sponsors from Chile to Vietnam. Since the Glazer family -- Americans who also own the National Football League’s Tampa Bay Buccaneers -- took over in 2005, United has set up commercial offices in London and Hong Kong. FC Barcelona followed United last year by agreeing to rent a Hong Kong office.
The English club’s profit for the three months ended Dec. 31 was 19.8 million pounds ($33.3 million), compared with 19 million pounds in the year-earlier period. That’s about the same profit that Real Madrid and Barcelona, soccer’s biggest teams by sales, make in an entire year.
United had gross debt of 356 million pounds at the end of last year, down 2.7 percent from a year earlier, according to its most recent earnings report. The team was debt-free before the Glazers’ purchase, and it has paid about 600 million pounds in interest and other financing costs since then.
The debt sparked fan protests and attempts to buy the team, with thousands of supporters wearing green and gold to represent the club’s origins as Newton Heath.
Some of the newest sponsors in United’s 35-company portfolio -- South Korean food company Ottogi Corp. (007310) and Thai confectionery maker European Food Public Co. -- were announced this month.
“It’s a very robust business,” Dominic Curran, managing director of London-based sponsorship consultancy Synergy, said. “They’ve always been slightly ahead of the crowd. One poor season won’t affect that.”
Randal Konik, a Jefferies Group LLC analyst, said in an e-mailed note he would keep his “buy” rating, with a $21 price target.
Manchester United Plc’s share price (MANU:US) rose 6 percent to $18.78 in New York Stock Exchange trading yesterday. The Glazers held an initial public offering in August 2012, raising $233 million by selling 10 percent of the club at $14 per share.
Some of the IPO shares were purchased by fans, which also helps support the stock price, Andrew Wilkinson, chief market analyst at Greenwich, Connecticut-based Interactive Brokers, which doesn’t rate stocks, said in a note. At the same time, investors’ view of United’s earnings outlook could be too optimistic, Wilkinson added.
There could be “deeper disappointment at stake should the trophy cabinet remain bare for a second season,” he said. Wilkinson said in an e-mail that he doesn’t own shares of United.
United will miss out by not qualifying for the Champions League for the first time in 19 years. The elite European competition earned United 35.6 million euros ($49.1 million) in prize money last season as well as extra ticket and corporate hospitality sales.
It had match-day sales of 127.3 million euros last season, 35 percent more than London-based Premier League competitor Chelsea, according to Deloitte.
United’s slump under Moyes will limit future sponsorship deals and affect jersey sales, according to Edward Freedman, who headed United’s merchandising unit in the 1990s. A 13-year jersey deal with Oregon-based Nike Inc. (NKE:US), worth 303 million pounds, expires next year, and Woodward will try to increase that income.
United is “living on former glories at the moment,” Freedman said.
The club has no option but to spend on talent if it is to retain its status and value, according to Jim OâNeill, the former Goldman Sachs executive who led a consortium that wanted to buy the team following fan dissatisfaction with the Glazers in 2010.
“They’ve handled the past year so badly I don’t see any other path for them,” O’Neill, a former member of the club’s board and a Bloomberg columnist, said in an interview. “Let’s say we fast forward to October and United were outside the top four, one would imagine the market would completely de-rate the share price and then they’ve got problems.”
Making the slide especially painful for United fans is this season’s success for Liverpool, which was the record English champion before the arrival of Ferguson. Liverpool, an 18-time champion, leads the Premier League by five points with three games to play, while Chelsea and upstart Manchester City, whose 2011-12 title was its first since 1968, are still in the chase.
Ryan Giggs, who has played 962 times for United, is taking over from Moyes on an interim basis until a permanent appointment is made, United said yesterday. Paul Scholes, who played alongside Giggs in the team’s midfield, has returned from retirement to help with coaching, the team said.
Netherlands coach Louis van Gaal is the 2-1 favorite with oddsmaker Coral to replace Moyes. A successful $1 wager would yield a $2 profit. Ferguson is a 14-1 bet to return as coach, according to Coral.
Most United fans will stay loyal while the 136-year-old club seeks to recover its form, and commercial partners will also remain in place, Chattaway said. General Motors Co. (GM:US) is paying $559 million to put its Chevrolet brand on United’s shirts through 2021.
“They have plenty of markets locked up,” he said.
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