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SBD Global/February 28, 2014/Finance

Manchester United's On-Field Struggles Could Pose Financial Risk Off The Field

ManU has a long road to hoe to remain in this year's Champions League.
ManU "may face a double challenge to its financial outlook: poor results on the field and rising wage pressure off it," according to Ben Priechenfried of BLOOMBERG. The team must overturn a 2-0 deficit against Olympiacos to stay in this year’s Champions League, and it is 11 points "adrift of a top-four Premier League place that would bring qualification for the elite European tournament next season." Wage costs "are rising," with England striker Wayne Rooney signing a reported £85M ($142M) contract. ManU may now miss out on a spot in football’s top club competition for the first time in 19 years, "hurting the team’s commercial income and share price." Simon Chadwick, a professor of sports business strategy at the U.K.’s Coventry University, said, "There’s potentially upwards of 100 million pounds at stake. Obviously, this is all premised on winning the Champions League, but even a modest run in the competition could generate 50 million pounds or more." Salary costs also concern equity analyst Joseph Hovorka of Raymond James & Associates. He cited an “uptick in player wages” as one of his reasons for downgrading ManU’s rating to “market perform” from “market outperform” on Feb. 14. That means the stock "is expected to deliver about the same return as the S&P 500 over the next year." The share price "has been slipping" even as the club posted record sales of £122.9M in the second quarter, including a 39% rise in sponsorship income. ManU's N.Y. Stock Exchange value "has fallen about 15 percent since early December." Repucom Global Dir of Enterprise Services Andrew Walsh said, "Due to its high brand value as one of the world’s most followed clubs, merchandise, licensing and revenues via digital formats for example would not be affected." ManU "is the third most valuable sports team brand," according to Forbes magazine, and its uninterrupted appearance in the Champions League, combined with what the club says is a global reach of 659 million followers, "gives it powerful commercial opportunities." BrandRapport Sports Marketing Dir Nigel Currie said, "They’ve capitalized on the global exposure of the Champions League. It’s a pretty important shop window for them" (BLOOMBERG, 2/26).
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