David Moyes' sacking may have saved Manchester United from financial meltdown


Sacking David Moyes was about much more than football. Major clubs are huge financial operations these days, but the pressures of the business world are felt more acutely at Manchester United than they are elsewhere.

Under the Glazer family, who own 90 per cent of the club after floating 10 per cent on the New York Stock Exchange, last year’s champions are up to their necks in debt.

Manchester United pulled in revenues of £363million in the year to June 2013 but immediately paid out a fifth of that sum, some £73million, in interest payments.

VIDEO Scroll down for End of an Era at United? The fans have their say about Moyes

Qualification a must: The Glazer family had little choice but to sack David Moyes

Qualification a must: The Glazer family had little choice but to sack David Moyes

Ahead: United are in serious risk of financial meltdown if they fail to qualify for the Champions League next term

Ahead: United are in serious risk of financial meltdown if they fail to qualify for the Champions League next term

The club reported a net profit of £146m for 2012/2013 but fell one place in world football’s rich list, knocked into fifth place by Bayern Munich.

The high levels of debt following the takeover, which was funded by loans from US hedge funds, mean that as a business, Manchester United has very little room for manoeuvre.

Some estimates put the total amount of debt and interest repaid at £400m since the Glazer family took control in 2005.

A retail business, such as a supermarket for instance, could respond by closing shops and sacking staff to bring down its costs.

At a football club, that is much harder to do.

Manchester United’s staff costs are approximately £180million, largely from paying sky-high wages to the likes of Wayne Rooney and Robin van Persie.

The club cannot realistically take the axe to these costs without getting rid of the top quality players they need to deliver good results.

Head bowed: At times this season Moyes has cut a very lonely figure on the touchline

Head bowed: At times this season Moyes has cut a very lonely figure on the touchline

This, coupled with the crippling levels of debt racked up by the Glazers, mean the club desperately needs to keep up the flow of money from TV rights, shirt sales and sponsorship deals.

The club will not receive any Champions League money next year, a disappointment estimated to cost at least £30million in lost broadcast revenue and ticket sales.

It can afford to do without club football’s most prestigious competition for one season.

But the Glazers will have feared handing Moyes a transfer warchest of £100million or more, only to miss out again next season.

Nor will the best players – whose names sell millions of shirts in the Far East and elsewhere – want to join the club.

Decision makers: United CEO Ed Woodward (left) and Alex Ferguson were in discussion on Moyes' future

Decision makers: United CEO Ed Woodward (left) and Alex Ferguson were in discussion on Moyes' future

And will Nike, who paid £38m to sponsor the club in 2013, want to fork out as much in future for a club lacking in the sort of success that global brands like to associate themselves with?

With these sources of income under threat, England’s most successful club is at serious financial risk.

‘The debt levels are so large, the Glazers cannot afford to let him stay,’ says financial analyst Louise Cooper.

She points out that the Glazers will also be thinking about how much they are likely to get for the club when they eventually sell up.

Fan anxiety: Many of the supporters did not believe Moyes was the right man for the job

Fan anxiety: Many of the supporters did not believe Moyes was the right man for the job

Buried in the company’s 2013 annual report is a telling line, which warns that the value of the club would suffer in the event of ‘failure to qualify for the UEFA Champions League once every five seasons’.

That prospect, or even worse, is now staring the Glazers full in the face.

That United’s share price climbed more than 7 per cent yesterday tells you what investors, who view these things with a cold heart, thought of Moyes’ reign.

There is one last reason for Moyes’ sacking, or at least for the timing of it.

 
Short term answer: Ryan Giggs will take over for the remainder of the season

Short term answer: Ryan Giggs will take over for the remainder of the season

The fact that it is now mathematically impossible for United to play in the Champions League next year has made it cheaper to ditch him than it was a few weeks ago.

Under the terms of his contract, the failure means United only need to give him a pay-off worth one years’ salary, rather than buying him out of a five-year contract.

At an estimated cost of £5million for that payoff, that’s cheap compared to the cost of continued failure.