In this era of profit and sustainability, it is easy to forget that a football club needs two things to spend in a transfer window: room for manoeuvre on financial fair play and enough cold, hard cash to pay for signings in the first place.
“Revenue is vanity, profit is sanity, but cash is reality”. At Old Trafford, reality is beginning to bite.
The January transfer window is open, but Manchester United are yet to make a signing due to a need to balance any incomings with outgoings.
That may come as a surprise to anyone glancing at the most recent set of accounts. As of the end of September, United had a healthy bank balance of £149.6m. That is more cash than they have held in reserve at any point since the Covid-19 pandemic.
Last month, a further £79m was added by Sir Jim Ratcliffe as part of the $300m investment promised upon him becoming a minority owner last year, which also increased his minority stake to 28.9 per cent.
You’d think that would still leave enough loose change lying around to buy Ruben Amorim a left wing-back and maybe United will, having held talks with Lecce to sign Patrick Dorgu this week.
United are pursuing a deal for Dorgu but are running low on cash (Getty Images)
There is a problem, though: United’s pile of cash has not been generated by the club itself.
It has come through either short-term loans, which carry interest charges and will one day need to be paid back, or through Ratcliffe’s investment, which is earmarked for upgrades to facilities at Old Trafford and Carrington.
And on top of that, according to September’s accounts, United still have a net figure of £319m in transfer fee instalments to pay for players they have already signed, with at least £154m due within a year.
“The thing that goes under the radar with Manchester United is that, especially under the Glazers, they bought players on tick,” says Kieran Maguire, football finance expert and lecturer at the University of Liverpool.
After five years of consecutive loss-making amid mediocrity on the pitch and stagnant revenues off it, United have had to defer payments, spend on credit and pull different financial levers to maintain their level of investment in the playing squad.
“They’re living a Champions League lifestyle on Europa League income,” Maguire adds.
That cannot go on forever because underneath the hood, once you compare the cash the club is actually bringing in against how much it is paying out, you can see why United need to balance the books.
Why are United strapped for cash?
Like any Premier League club, United need cash to pay transfer fees, wages, tax bills and interest charges and to meet the cost of any upgrades to their stadium or training facilities.
All being well, United meet those obligations through the funds raised in the transfer market from selling players and their operating cash flow, which is the cash generated by the club’s day-to-day business.
Last season, United’s operating cash flow stood at £118m, with a further £37m recouped in transfer fees. A £4m tax rebate also helped. Yet, all together, that £159m generated was quickly eaten up.
First, take away £36m paid out in interest, partly spent servicing the debt lumped onto the club by the Glazer family upon their leveraged buy-out in 2005. That is almost all the cash received in transfer fees immediately wiped out.
Then, subtract the £18m spent on improving facilities at Old Trafford and Carrington. Upgrading the stadium and training ground has been a long-term necessity and the type of investment United should have made long before now, but it is still a short-term cost.
And, finally, take away the £191m spent in transfer fees last season, which will have partly paid for the three major summer signings of Rasmus Hojlund, Mason Mount and Andre Onana, but will also have covered instalments due for previous deals.
You do not need a calculator to see that the cash generated by the club last season did not even cover United’s transfer outgoings. Factor in the interest payments and infrastructure upgrades and there was an £86m gap between the cash flowing in and cash flowing out of Old Trafford.
It was not a one-off, either. It was a similar story a year earlier, at the end of the 2022-23 season, when a £44m deficit contributed to United’s cash in the bank falling from £121m to £76m.
Fortunately, last season’s £86m gap could effectively be bridged by Ratcliffe’s first cash injection, worth £159m. As a result, United ended the season with £74m in the bank, about as much as they had when it started.
How could United afford to spend in the summer?
That £74m was not going to be enough to bankroll a summer transfer window, so United made a £200m drawdown on their revolving credit facility.
United’s credit facility can essentially be thought of as a credit card, which allows the club to borrow up to £300m any time they are short of cash.
Joshua Zirkzee, Leny Yoro, Matthijs de Ligt, Noussair Mazraoui and Manuel Ugarte were all subsequently signed in deals worth £219m combined, with that spending balanced out somewhat by the sales of Mason Greenwood, Scott McTominay and Aaron Wan-Bissaka among others.
According to the latest figures, United owe a total of £230m on their credit facility. None of that debt needs to be repaid until June 2027. Even then, the terms could be extended.
Since making their first drawdown in 2020, United have tended to pay down their credit facility over the course of a season. The club owed £260m on it this time last year but had reduced it to just £30m by the end of the campaign.
Still, it costs United money to service that short-term debt through interest payments. If the club were to settle their £230m balance between now and the end of the season, they would have to dip into their cash reserves to do so.
And remember, United also owe £319m to other clubs in transfer debt, with at least £154m due to be paid within a year.
That figure always jumps up in the first quarter following a summer of spending, but £154m is the most United have owed in short-term transfer debt after a summer window for the past decade.
In the long run, Maguire argues that is unsustainable. “Anybody that lives their life on credit will tell you, eventually it catches up,” he says. “You can’t go and buy a bunch of scratch cards if you know you’ve got to go and pay the rent.”
Where has all the money gone?
Look at United’s financial statements and it is no coincidence that things started to deteriorate during the Covid-19 pandemic. United’s cash reserves stood at £308m at the end of the 2018-19 season but had fallen to just £52m a year later.
The club had an operating cash flow of £264m before the pandemic, yet it has barely reached half that figure in the years since. Were it not for the credit facility and Ratcliffe’s investments, United would have a negative cash flow of £330m since the end of the 2019-20 season.
United were disproportionately affected by Covid compared to other Premier League clubs in respect of matchday revenue, by virtue of the 74,310-capacity Old Trafford being English football’s largest club stadium.
Nevertheless, unlike some of their rivals, United did not take advantage of the government’s furlough scheme and continued to pay casual staff despite matches being played behind closed doors.
Those choices were admirable, but the associated costs were small change in the grand scheme of things and do not themselves explain why the club began losing so much money.
Far more questionable was the Glazers’ decision to continue paying out £166m in dividends over the course of a decade between 2012 and 2022, much of which lined their own pockets as majority shareholders.
United’s interest payments on debt under the Glazers’ ownership have come at an even greater expense, totalling £790m since their leveraged buy-out in 2005, and have steadily increased in the last few years due to rising interest rates across the globe.
Yet by far the most costly expense — and in many cases, the most wasteful — has been transfer spending, which has seen a net £1.3bn in cash spent over the past decade.
Despite only reaching the quarter-finals of the Champions League once in the past 12 seasons, therefore missing out on the significant prize money that comes with progress in Europe, United have continued to spend at the level of the continent’s elite clubs.
And again, that is only cash payments — it does not include the £319m still owed for players already at the club.
What can United do to raise cash?
United still have £70m worth of room available on their credit facility if necessary, although that would mean placing yet more debt on the club and increasing their interest payments.
Ratcliffe’s injection of $300m — worth £237.5m in total — has now been paid into Old Trafford’s coffers. Unless he is willing to pour more of his own money into the club and in doing so increase his stake, that is all the ownership funding United are due for now.
In any case, that money was intended for Old Trafford and Carrington in the first place, so any spent in other areas needs to be replenished and eventually used for that purpose.
United could seek other investment. In September, the club released a prospectus to the New York Stock Exchange announcing plans to raise up to $400m through the sale of Class A shares and other securities.
However, none of those options address the fundamental issue at hand: United have struggled to generate cash through their day-to-day operations as a club and business since the pandemic.
Short of becoming a Champions League-quality side overnight, there are two ways United can quickly improve things: by cutting costs and selling players.
Ratcliffe has already set about on the first of those objectives, culling 250 jobs last year, casting the INEOS-led era as one of retrenchment. The scythe is now being wielded among the playing squad.
United are seeking suitors for Marcus Rashford, whose salary of more than £325,000 a week would clear significant space on the wage bill, but any exit this month is all but certain to only be on loan.
United will listen to offers for Rashford (Robbie Jay Barratt – AMA/Getty Images)
Casemiro, another of United’s highest earners, has appeared in just three of United’s last 12 games. Antony is closing in on a loan deal to Real Betis, while United are exploring options for Tyrell Malacia.
It is not just those on the fringes of Amorim’s squad under threat, though. Supporters were taken aback by news of United’s willingness to countenance offers for Kobbie Mainoo and Alejandro Garnacho, with Napoli and Chelsea both pursuing the latter.
The Premier League and UEFA’s spending rules are part of United’s reasoning. As both are academy-trained players and therefore have little to no book value, fees would represent close to pure profit in the accounting books.
But there is also simple old-fashioned reasoning behind United’s willingness to listen to offers: Mainoo and Garnacho are two of United’s most valuable assets, who would therefore bring in the most money to reinvest in the squad.
How does all this relate to PSR and FFP?
Financial fair play regulations — and particularly the Premier League’s profit and sustainability rules (PSR) — have dominated discussion of every top-flight club’s finances over the past 18 months or so, with United no exception.
Senior Old Trafford figures felt PSR compliance for the 2023-24 cycle would be ‘tight’. Despite an approximate pre-tax loss of £313m over the three-year cycle, United were able to apply deductions to bring that figure under the £105m limit and were not charged by the Premier League.
That should bring confidence of compliance for the 2024-25 test, too. It also helps that, for the current three-year cycle, United’s £150m loss during the 2021-22 season has been replaced by last season’s mere £131m deficit — an extra £19m’s worth of room compared to last season’s test.
United still need to be cautious, however, and the need to comply with both the Premier League and UEFA’s regulations is informing almost every decision the club makes.
It was telling that Erik ten Hag cited spending rules as the reasoning behind academy product McTominay’s £25.7m sale to Napoli, which United will benefit from in the 2024-25 cycle.
Triggering the extension in Harry Maguire’s contract will also give United a little extra wiggle room in their PSR calculations, reducing the annual amortisation charge of his hefty £80m transfer fee in the accounts.
Compliance with spending regulations is now a vital factor clubs have to consider before investing in their playing squad, but you still need the resources to hand, too.
It was always taken for granted that there would be money to burn at Old Trafford, but after years of failing to back their spending up with success on the pitch, United are beginning to wake up to their new reality.
(Header design: Dan Goldfarb; photos: Getty Images)
