|United and Arsenal Battle for Commercial Revenues|
|Written by Wyn Grant|
|Saturday, 08 October 2011 19:58|
According to the Superbrands Expert Panel, Manchester United are the sixth most recognizable brand in the world, behind only Google, Apple, the BBC, Dyson [which I find puzzling] and Facebook. They are ahead of Coca-Cola and Microsoft. In the same survey Chelsea are placed 54th, Arsenal 160th and Liverpool 171st.
Perhaps, however, one has to be wary of the judgments of experts. A poll of the UK public saw United come in 73rd. Chelsea were 193rd and Liverpool (219th) were ahead of Arsenal (230th). One suspects that in a similar poll in the US Manchester United would not be much above the radar.
Nevertheless, there is no doubt that the marketing push by the Glazers has dazzled brand specialists. This year they were asked to join M50, an invitation-only body for the 50 most powerful global brands. The Glazers have spent more than £40m in devising and executing a commercial strategy that has yielded a tenfold return with more than £400m generated from over 100 commercial contracts. A two person operation in Manchester has been replaced by a team of 45 working out of a luxurious Mayfair office.
A survey by TNS Sport in 2006-07 that interviewed 28,000 people in 21 countries reported that United had 333 million followers worldwide, 192 million of whom were in Asia. United have developed commercial partnerships in more than 45 countries in Asia and TNS is now updating its findings.
A separate survey by Futures Sport and Entertainment concluded that United generated 4.2 billion television viewers worldwide last season. That equates to a NFL Super Bowl worth of viewing figures every seven days and means that more people watch United globally than the whole sport of Formula One.
What is clear is that United are determined to make as much as possible out of their fan base. In the next phase of their commercial strategy, Manchester United are determined to monetize their fan base 'and put that into a moneymaking machine' in the words of their commercial director, Richard Arnold talking to the Financial Times.
He reckons that the money that the Premiership champions can make from exploiting their fan base will dwarf the income it has been getting from sponsorship deals, itself very substantial. Up until now these deals have been the main source of expanding commercial income and have included the £80m shirt sponsorship deal with Aon and the innovative £40m training kit deal with logistics company DHL.
In recent weeks United have closed several deals with credit card companies that will enable United to earn income directly from their fans around the world. The club makes money when the Manchester United branded cards are first activated, during their general use and whenever the user incurs charges.
The club's customer database stands at 11 million, giving it a quantity of data comparable to a Boots [drug store chain] loyalty card or Tesco [supermarket] clubcard. However, Mr Arnold acknowledged that cracking the Chinese market - 'a hugely important piece of the puzzle in our commercial success' - was complicated and time consuming.
However, the Manchester United Supporters' Trust (MUST) questioned whether the Glazers really understood the fans. 'The problem with their ownership model is the fans don't feel a sense of ownership,' said Duncan Drado of MUST. 'They feel a sense of exploitation.'
Stan Kroenke, Arsenal’s majority shareholder and a major sports franchise holder in the US, is determined to close the gap between their commercial income and that of United. He sees this as key to the London club’s future success.
The club’s annual report gives an indication of how big is the gap between the two clubs in this area. Arsenal's commercial revenues were marginally up to £46.3m, gaining £2.4m on the previous year; over the same period United's reached £103.4m.
Arsenal reported a decline in full-year operating profit as increased wage costs offset a rise in commercial revenue. Underlying operating profit fell to £45.8m in the year to end May from £56.8m the year before.
Arsenal, who have been criticized by fans for lagging behind rivals such as Manchester City and Manchester United in investment on the playing front, said player wages increased to £124.4m from £110.7m the year before. That represented 55.2 percent of total football revenues, a sharp increase on the 49.7 percent level seen the previous year. However, it is a figure that still compares favorably with many other clubs.
'Our primary objective, as we take the club forward, will always be success on the field,' stated chief executive Ivan Gazidis. 'To give the club the best opportunity to achieve this, we must drive a virtuous circle of increased revenue, increased investment in the team and a larger engaged fan base and we must do this in a way which is self-sustaining and protects the long-term future of the club.'
Arsenal said revenue decreased to £255.7m from £379.9m the year before, reflecting the expected lower level of sales of apartments at Highbury Square, the site of their old stadium. Some 69 apartments were sold during the year generating £30.3m pounds of revenue, compared with 362 sales generating £156.9m the previous year.
Matchday revenue fell to £93.1m from £93.9m, reflecting fewer Champions League games. Broadcasting revenue was marginally higher at £85.2m from £84.6m the year before due to the club's extended runs in the FA Cup and League Cup. Combined retail and commercial revenues rose to £46.3m from £43.9m.
The Emirates Stadium debt, long considered a millstone, is in fact encouragingly cheap. The club saved £4m on the previous year's debt payments, down to £14.2m from £18.2m. But although property developments could drive a £40m windfall, Arsenal cannot rely on past reserves and property revenues forever. This means they must grow football revenues to maintain their self-sustaining strategy.
This could continue to constrain Arsenal in the transfer market until the headline shirt-sponsorship agreements with Nike and Emirates expire in 2014.
Financial Fair Play
The 2011/12 season will be the first year clubs will be assessed under UEFA's new Financial Fair Play rules, designed to stop clubs spending more than they earn, and Gazidis said the club are well placed to comply with the new regime.
Tim Payton, spokesperson of the Arsenal Supporters Trust, said the results were 'not surprising. The problem is the very low amount of commercial income compared to say, Manchester United,' he said. 'The Arsenal model is struggling to keep up with the top three clubs and it’s got a real challenge to stay competitive until 2014 when new retail deals are negotiated.'
At the other end of the league, Plymouth Argyle have at last found a buyer after several months when players and staff did not receive all the wages due to them. The preferred bidder had been property developer Kevin Heaney who headed up a mysterious Gibraltar-based consortium. However, the consortium was unable to come up with the money and the tax authorities have issued a winding-up order against Heaney’s non-league Cornish club, Truro City.
Fortunately local businessman James Brent stepped into the breach. He confessed to knowing nothing about football, but joined the fans on the terraces to share their passion. There are still some formalities to be dealt with, but the deal should be completed soon. However, Argyle came perilously close to extinction as they prepared to celebrate their 125th birthday. Plymouth should be a large enough city to support a league club, but mismanagement undermined the club, something that happens all too often in football.
The Radio Scilly sports show is back on air and my slot is normally shortly after the 10 a.m. BST start at www.radioscilly.com