Manchester: One city, two powerhouse teams

13.11.2018

Both domestically and internationally, the city of Manchester can arguably be considered one of the most competitive in terms of football results. As an example, the city hosts two of the most valuable football clubs, according to KPMG’s Football Clubs’ Valuation: The European Elite 2018” report, in which Manchester United FC and Manchester City CF rank 1st and 5th, respectively.

This Premier League weekend featured a blockbuster: the Manchester derby, with a clear dominance by the current leaders of the league, Manchester City FC. This match has become a “must-see” for millions of fans that support the two clubs around the world, from the US to the Far East. If the strong appeal of Manchester United FC outside the UK borders is also well known, on the other hand, the impressive growth of the Cityzens is a relatively recent trend that started with the club's acquisition by the Abu Dhabi United Group in 2008 and has continued thanks to remarkable on-pitch success. After last Sunday’s clash and the 10-year anniversary since the takeover of Manchester City FC, the KPMG Football Benchmark team has set out to compare the evolution of both the Red Devils and the Cityzens over the past seven seasons from a business perspective.

Considering operating revenues, both clubs show an impressive increase between the 2011/12 and 2017/18 seasons: +76% for Manchester United FC and +108% for Manchester City FC. This higher percentage increase allowed the Cityzens to reduce partially the existing gap with the Red Devils; indeed, while in the first season under analysis United registered revenues 39% higher than City, in the last season such a gap was reduced to 17%. These figures are a result of the wider international appeal gained by Manchester City FC in recent seasons, which is especially reflected in broadcast (+129% over the seven seasons), thanks to constant UEFA Champions League participation unlike the Red Devils, who have suffered fluctuating on-field performance, and in their commercial income streams (+109%), due to the numerous new partnerships secured both at regional and global levels. Meanwhile, the matchday improvements of City (+52%) are mainly due to the capacity extension of the “Etihad Stadium” in the 2015/16 season.

While in percentage terms Manchester City FC outpace their rivals, Manchester United FC still sit on top in terms of both matchday and commercial revenues. The iconic “Old Trafford”, with 75,000 spectators on average in 2017/18, was sold-out every Sunday for the entire period under analysis, making it difficult for City to compete, considering the 54,000 average attendance seen last season. The primacy of United is also firmly stable in terms of commercial revenues, considering how the existing gap with City increased over the years in question, from +9% to +17%, despite the aforementioned impressive steps forward made Manchester City FC. These figures confirm the capability of Manchester United FC to create and establish the most valuable football club in the world, allowing for the full exploitation of merchandising and sponsorship deals. Recent agreements with adidas and Chevrolet for, respectively, EUR 85 million and EUR 60 million, are the perfect examples of their best practice. Interestingly, for both clubs such commercial activities represent their main source of revenue, comprising 47% of total operating revenue in 2017/18.

Revenue growth results are useless if clubs do not manage to gain control of costs. For both Manchester clubs, staff costs represent the main operating expense, with an increasing trend in the last seven seasons of +23% and +75% for Manchester City FC and Manchester United FC, respectively. One remarkable finding is the huge reduction in staff costs/operating revenue ratio in the period under analysis for the Cityzens, whose ratio decreased from 87% in the 2011/12 season to a more sustainable value of 52% in the past season; meanwhile, the Red Devils’ ratio remained stable at around 50%, still below their rivals.

In the past seven seasons, on-pitch results favour the Pep Guardiola side, which won three Premier League titles, three English Football League cups, two Community shields and reached the UEFA Champions League Semifinals once. In the same period, United have won the league only once, plus one English Football League Cup, one FA Cup, two Community shields and one UEFA Europa League. However, domestically, Manchester primacy is still in red hands, as Manchester United FC won 20 league titles versus five. A staff costs per league points ratio reinforces the recent major efficiency of the Sky Blues, corroborated by better sport performance.

The efforts undertaken by City, following the advent of the new ownership, are illustrated in the following table. In the first three seasons under analysis, indeed, the club accumulated EUR 206 million losses. Such negative results, a direct consequence of the significant investments made in order to strengthen the squad, caused City to fall foul of UEFA FFP Regulations and enter a settlement agreement in May 2014 with the Club Financial Control Body (CFCB) because of failure to comply with the break-even requirement. However, from the 2014/15 season on, a clear upward trend is visible, which has mitigated the aggregate loss in the past seven seasons to EUR 151 million. Manchester United FC, on the other hand, have blazed a much more lucrative trail, accumulating EUR 285 million of net profit in the same period. Besides better cost control, especially in terms of staff, it is important to highlight that the remarkable positive net result of the 2012/13 season has been mainly a consequence of the recognition of deferred tax assets, in accordance with the rules in force in the United States after the Group reorganization, while the significant net loss of the past season is mainly due to a recent change in the US federal corporate income tax rate.

In conclusion, a gap between the two Manchester clubs still exists. However, starting from the first Premier League title won under the new ownership (2011/12), Manchester City FC have been able to keep on growing, reducing the gaps from their city rivals and consolidating their position in the football elite. In the future the challenge is surely on the pitch, with the Cityzens aiming at writing their name on the Champions League trophy for the first time in their history, an event that could further boost their financial performance.