Manchester United face a challenging financial time of it without Champions League football next season
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Old Trafford
Manchester United's Old Trafford home(Image: Molly Darlington/Copa/Getty Images)
Manchester United’s Europa League final defeat at the hands of Tottenham Hotspur on Wednesday left the club’s owners with plenty to ponder from a financial perspective.
Defeat at the Estadio de San Mames consigned United to a season without European football next season, with the qualification for next season’s UEFA Champions League that comes with emerging triumphant in the competition worth a conservative £70m to major English clubs, and that is before knockout stages are factored in and the additional four home games minimum that yield £4.3m a pop for United.
The financial hit has been well reported, and missing out on such sums will be impactful for United and their embattled boss Ruben Amorim when it comes to how they are able to approach the summer transfer window. There is both the Premier League’s profit and sustainability issue and a cash flow and transfer debt issue to be mindful of. Missing out on such a cash pot like the Champions League has its ramifications.
But while silver linings might be in short supply right now at Old Trafford, there is, in theory at least, financial comfort that can be found even in the event of poor performance on the pitch that negatively impacts revenues.
A report in the Financial Times on Thursday focused on a covenant that exists on multiple credit facilities that total up to £725.7m.
Most large businesses and football clubs rely on debt and revolving credit facilities that allow them to make up financial shortfalls or complete infrastructure projects within the business. Manchester United are no exception to this.
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According to Manchester United’s financials, which are published on a quarterly basis due to them being publicly listed on the New York Stock Exchange, December showed that among the multiple loans there was £337.7m in outstanding bonds maturing in 2027, a £178.1m secured term loan from the Bank of America Merrill Lynch due for repayment in 2029, a £150m revolving credit facility of which £130m is in use, £50m that has been drawn from a revolving credit facility with a £75m limit, and another £30m outstanding from a £45m capped facility. That is a significant amount of debt to service.
As per the FT report, some of the bonds carry with them an ‘unconventional’ covenant. This covenant states that the clubs must maintain rolling 12-month EBITDA (earnings before interest, tax, depreciation and amortisation), which is the standard financial instrument to measure the performance of a business, of at least £65m to avoid triggering a default. Should that be reached then the lenders have the right to call in the repayment of funds.
But as part of the bond deal, United have a covenant that has protected themselves against poor competitive performance, which could, in theory, have saved them a lot of money were the club to have suffered poor financial performance but still qualified for the Champions League. A bizarre mix of bad finances and good football.
A statement to the fact in the club’s most recent financial statement read: “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.”
The goal of United, of course, is to reach the Champions League. It offers transformational revenue streams through prize money, broadcast sums and matchday income, and being a regular participant supercharges revenues, something that Liverpool and Arsenal can attest to over the past five or six years.
United have made significant losses over the past five years of a combined £371m, but they have managed to keep their EBITDA well above the £65m threshold, the closest they came to breaching it being in 2022 when it stood at £81m.
With high amortisation figures in the accounts of some £200m, the guidance is that an EBITDA figure for the current year could be between £145m and £160m, meaning that Manchester United have nothing to be concerned about when it comes to having a major debt called in by lenders.
But in such covenants existing with the club’s lenders it speaks to the mindfulness that ownership has to have when taking on such debt, and with the club potentially having to face a fairly long slog to get back to where they want to be, and with no immediate panacea in sight to restore former glories and Champions League football, as well as the potential for declining revenues in the face of a lack of that, then ensuring they are well protected is of paramount importance.
Winning football matches is a lucrative business, but in the event of losing football matches the club has a way to ensure that it isn’t catastrophic in the longer term in the event that their bullishness over EBITDA is wide of the mark.