Could Nike Ride To Manchester United's Premier League "Financial Fair Play" Rescue?

Could Nike Ride To Manchester United's Premier League "Financial Fair Play" Rescue?

David Moyes’ time as manager of Manchester United was brought to an end last Tuesday only ten months after he was appointed to succeed Sir Alex Ferguson.

Despite approving a six-year contract last May the Manchester United board of directors called time before Moyes had even completed a full season.

During Moyes’ tenure the sun only briefly peeked through the dark clouds of dull soccer and bad results that hung ominously over Old Trafford. Only for the briefest of moments did they look like dispersing.

Manchester United’s image suffered through the consequence of Moyes’ appointment and performances but the club also handled the dismissal very poorly.

The groundwork was laid with a series of leaks to selected members of the media after a 2-0 loss to Everton last Sunday. Fans around the world woke up on Monday to headlines that trumpeted the imminent sacking of Moyes.

But rather than a quick execution it took another 24 hours for the deed to be done. During the intervening period there was a cavalcade of stories obviously sourced through club insiders and players. The purpose was to substantiate the coming dismissal.

It was a major gaff and a strategy unbecoming Manchester United. The fact is that there was little or no need to build a case. The majority of United fans were already convinced that Moyes’ role as the manager of Manchester United was untenable and the only decision left was when he would be released rather than if.

The lack of a coherent and defensible communications strategy was reinforced during the days that followed. The club started to backtrack with Moyes’ role in potential transfers being acknowledged and there was a softening of the stories that had so obviously been planted just 48 hours before.

By Thursday, the story had moved on to the star players Manchester United were looking to sign this summer and how the squad needed to be rebuilt.

The advisability of spending a reputed $150M to $200M on new players without a new manager in place is open to question. Nonetheless, it seems widely accepted that Manchester United has simply to flex some financial muscle and normal service will be resumed.

But it is not as simple as that, in fact far from it.

Although some of the media chatter has acknowledged the issue of Financial Fair Play and the need for Manchester United to remain “onside,” the barometer used is more often than not UEFA’s regulations.

The UEFA model offers some spending exemptions e.g. youth development, stadium development but the maximum permitted losses are restricted to a cumulative $60M in blocks of three years that roll forward.

The maximum permitted losses are scheduled to reduce in years to come but the underlying principle is the same – a club can spend as much as it likes as long as it can generate a commensurate level of “legitimate” income.

Even after debt interest payments (a staggering $230M in just the last three years) inflicted on the club by the owners, Manchester United is still regarded as a profitable business that can safely navigate through a short-term revenue reduction.

Champions League revenue for this current year is worth around $55M to Manchester United and the loss will cut into United’s profit. Over the last three years (2013 to 2011) Manchester United’s cumulative net income before extraordinary items has been $276.5M – by year $222.3M, $34.9M and $19.3M.

However, Premier League TV rights will bring in an additional $30M this season and also for the next two. There has also been new or extended sponsorship deals signed in the last year. It certainly seems that Manchester United could spend a substantial amount of money this summer and still book a profit for 2014/15 and probably beyond.

But ironically UEFA Financial Fair Play is not Manchester United’s biggest stumbling block but rather it is a much lesser known domestic version.

Not so long-ago the Premier League adopted new regulations effective the 2013/14 season that are relatively unknown, let alone understood. Like UEFA Financial Fair Play the Premier League’s objective is to have clubs operate in a sustainable manner but the approach is different.

In effect, the Premier League has taken a two-tier approach – the first “long-term sustainability regulation” and the other “short-term cost control.”

The cap on maximum allowable losses under the Premier League model is set much higher at $160M over three years. By allowing greater losses the Premier League has essentially given a nod and a wink to potential owners with deep pockets who may still be interested in joining one of the world’s most prestigious “clubs.”

The short term cost control measure focuses on player wage costs and in particular the top end and Manchester United is most definitely at the top end.

For this season (2013/14) and the next two any team with a 2012/13 base player wage cost of $80M or more is restricted to wage increases of $6M a season. However, if a club can show an increase in “club revenue uplift” then it may exceed the limit of $6M a year up to a maximum as set by the “uplift”.

It is worth putting $6M into context. The average player’s salary at rivals Manchester City is estimated at close to $8M a year. Southampton’s Luke Shaw is still a teenager and supposedly a transfer target for Manchester United. Shaw’s rumored salary at Old Trafford of $8M would wipe out $6M and leave United’s bean counters scrambling to meet the Premier League salary provision.

Toss in rumored interest in PSG striker Edinson Cavani, Bayern Munich’s Toni Kroos or Barcelona’s Cesc Fabregas and United are looking at an increased wage bill of around $12M to $15M per player.

But would United’s “club revenue uplift” not come to the rescue?

The answer at the moment seems to be it depends.

The definition is interesting but it is also restrictive. Clubs can show “revenue uplift” by generating more money from the gate receipts, an increase in sponsorship deals and growth from Champions or Europa League participation against the baseline of 2012/13.

What is excluded is money that flows to clubs from the Premier League’s TV contracts.

So in order to increase its salary bill by more than $6M next season Manchester United is going to have to find a way to make up a shortfall of $55M or more from the loss of Champions League money and related gate receipts.

The good news is the shirt sponsorship agreement with Chevrolet will take full effect next season and the increase over the previous arrangement is likely close to $40M per year. It is also a fairly reasonable assumption given the regular announcements by Manchester United that new or extended sponsor agreements might fill the remaining Champions League gap.

But that still leaves Manchester United short if they are to sign some star players and stay on the right side of the Premier League’s “wage cap”.

However, salvation could still come Manchester United’s way.

The current kit deal with Nike expires at the end of the 2015 season so in theory any “uplift” would not kick in until the 2015/16 year. The present arrangement is worth around $36M a year but with Arsenal signing a $45M a year contract with Puma the expectation is that a new deal could be worth another $55M a year to Manchester United.

It is also worth noting that any new or extended deal with Nike, although long rumored, is not a certainty. Other sportswear companies are interested and there is also the possibility of the club blowing up the present merchandise model in favor of multiple deals managed in-house.

But if Nike is to remain a key sponsor of Manchester United there is no reason why a new contract could not be implemented sooner and some of that new cash find a way into the 2014/15 statements.

There is also one more option available to United and that is a dumping of existing players and contracts to compensate for any new arrivals. The problem is that if United is to shop at the high end of the market then a lot of mid-level talent will find a way into the transfer bargain bin.

No matter which route Manchester United takes it may be that spending money will be the easy part.

Rooney has signed a 5½-year contract worth the same £250,000 a week as his outgoing deal, which was due to expire in June 2015.

But while the contract has now been signed, Telegraph Sport understands that negotiations between United and the player’s representative, Paul Stretford, are ongoing over the 28-year-old potentially tapping into the club’s hugely-successful global sales team to boost his earning power from his own personal sponsorship deals.

Such an agreement would see Rooney, who has deals with Nike and Samsung, maximise his individual earning potential with United’s commercial staff working on his behalf to secure lucrative endorsements across the globe.

United will continue to benefit from Rooney’s image rights, with the player contributing to the club’s commercial programme as before, but such an agreement would be the first of its kind in the Premier League and one which it is anticipated would take the England international’s earnings beyond £300,000 a week.