SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(Exact name of Registrant as specified in its charter)
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Chief Executive Officer
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
Securities registered or to be registered pursuant to Section 12(g) of the Act.
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Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐
Non-accelerated filer ☐
Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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U.S. GAAP ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
TABLE OF CONTENTS
In this annual report on Form 20-F (“Annual Report”), references to “Manchester United,” “the Company,” “our Company,” “our business,” “we,” “us” and “our” are, as the context requires, to Manchester United plc together with its consolidated subsidiaries as a consolidated entity.
Throughout this Form 20-F, we refer to the following football leagues and cups:
|●||the English Premier League (the “Premier League”);|
|●||the Emirates FA Cup (the “FA Cup”);|
|●||the English Football League Cup (the “EFL Cup”);|
|●||the Union of European Football Associations Champions League (the “Champions League”);|
|●||the Union of European Football Associations Europa League (the “Europa League”); and|
|●||the Union of European Football Associations Europa Conference League (the “Europa Conference League”).|
The term “Matchday” refers to all domestic and European football match day activities from Manchester United men’s games at Old Trafford, the Manchester United football stadium, along with receipts for domestic cup (such as the EFL Cup and the FA Cup) games not played at Old Trafford plus receipts from Manchester United women’s home games. Fees for arranging other events at the stadium are also included as Matchday revenue.
PRESENTATION OF FINANCIAL AND OTHER DATA
We report under International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”), and IFRS Interpretations Committee interpretations. None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
All references in this Annual Report to (i) “pounds sterling,” “pence,” “p” or “£” are to the currency of the United Kingdom, (ii) “US dollar,” “USD” or “$” are to the currency of the United States, and (iii) “Euro” or “€” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.
This Annual Report contains estimates and forward-looking statements. Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks and uncertainties, including the effects of the novel coronavirus COVID-19 (“COVID-19”) pandemic, and are made in light of information currently available to us. Many important factors, in addition to the factors described in this Annual Report, may adversely affect our results as indicated in forward-looking statements. You should read this Annual Report completely and with the understanding that our actual future results may be materially different and worse from what we expect.
All statements other than statements of historical fact are forward-looking statements. The words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” and similar words are intended to identify estimates and forward-looking statements.
Our estimates and forward-looking statements may be influenced by various factors, including without limitation:
|●||risks related to the impact of the COVID-19 pandemic, including the severity and duration of the outbreak, impacts from variants, actions taken by government authorities to contain the outbreak or treat its impact, the impact on our fans, sponsors and suppliers, other impacts to the business, and the Company’s ability to sufficiently manage and mitigate the strategic and operational impact of such events;|
|●||the effect of adverse economic conditions on our operations;|
|●||maintaining, enhancing and protecting our brand and reputation in order to expand our follower and sponsorship base;|
|●||our ability to attract and retain key personnel, including players;|
|●||our dependence on the performance and popularity of our men’s first team;|
|●||our ability to renew or replace key commercial agreements on similar or better terms or attract new sponsors;|
|●||the negotiation, pricing and terms of key media contracts, which are outside of our control;|
|●||our reliance on European competitions as a source of future income;|
|●||the impact of the United Kingdom’s exit from the European Union (the “EU”) on the movement of players or other regulations;|
|●||our dependence on relationships with certain third parties;|
|●||our relationship with merchandising, licensing, sponsor and other commercial partners;|
|●||our exposure to credit related losses in connection with key media, commercial and transfer contracts;|
|●||our dependence on Matchday revenue;|
|●||our exposure to competition, both in football and the various commercial markets in which we do business;|
|●||our ability to protect ourselves from and resolve and remediate following having experienced cyber-attacks and data breaches on our IT systems;|
|●||actions taken by other Premier League clubs that are contrary to our interests;|
|●||our relationship with the various leagues to which we belong and the application of their respective rules and regulations;|
|●||our ability to execute a digital media strategy that generates the revenue we anticipate;|
|●||the impact resulting from serious injuries or losses of the playing staff;|
|●||our ability to maintain, train and build an effective international sales and marketing infrastructure, and manage the risks associated with such an expansion;|
|●||uncertainty with regard to exchange rates, our tax rate and our cash flow;|
|●||brand impairments resulting from failures to adequately protect our intellectual property and curbing sales of counterfeit merchandise;|
|●||our ability to adequately protect against media piracy and identity theft of our followers’ account information;|
|●||our exposure to the effects of seasonality in our business;|
|●||maintaining our match attendance at Old Trafford;|
|●||any natural disasters, terrorist incidents or other events beyond our control that adversely affect our operations;|
|●||the effect of our indebtedness on our financial health and competitive position;|
|●||estimates and estimate methodologies used in preparing our consolidated financial statements; and|
|●||the future trading prices of our Class A ordinary shares and the impact of securities analysts’ reports on these prices.|
Other sections of this Annual Report include additional factors that could adversely impact our business and financial performance, principally “Item 3. Key Information — D. Risk Factors.” Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Therefore, you are cautioned not to place undue reliance on these forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
MARKET AND INDUSTRY DATA
This Annual Report contains industry, market, and competitive position data that are based on the industry publications and studies conducted by third parties listed below as well as our own internal estimates and research. These industry publications and third-party studies generally state that the information that they contain has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these publications and third-party studies is reliable, we have not independently verified the market and industry data obtained from these third-party sources. While we believe our internal research is reliable and the definition of our market and industry are appropriate, neither such research nor these definitions have been verified by any independent source.
References to our “1.1 billion fans and followers” are based on the Survey commissioned by us, conducted by Kantar Media (Media Division of Kantar and division of WPP plc) (“Kantar”) in 2019, and paid for by us. As in the Survey conducted by Kantar, we defined the term “fans” as those individuals who answered survey questions, unprompted, with the answer that Manchester United was their favorite football team in the world and the term “followers” as those individuals who answered survey questions, unprompted, with the answer that Manchester United is a football team that they proactively follow in addition to their favorite football team. For example, we directed Kantar to include in the definition of “follower” a respondent who watched live Manchester United matches, followed highlights coverage or read or talked about Manchester United regularly.
The Survey was conducted during the first six months of 2019 and included over 54,000 respondents across 39 countries. It repeated a similar 2011 survey, also conducted by Kantar, to ensure comparability of approach, methodology and results. The Survey included questions on:
|●||demographics, age, gender and socio-economic background;|
|●||viewership of Manchester United matches, social media following and engagement;|
|●||relationship, awareness and attitudes to commercial partners; and|
|●||interest in Manchester United products, including merchandise.|
The Survey indicated that Manchester United has 1.1 billion combined fans and followers worldwide, comprised of 467 million fans and 635 million followers (compared to 277 million and 382 million, respectively, in 2011), including:
|●||a total of 731.7 million fans and followers in the Asia Pacific region (compared to 324.7 million in 2011);|
|●||a total of 296.1 million fans and followers in Europe, the Middle East and Africa (compared to 262.9 million in 2011); and|
|●||a total of 74 million fans and followers in the Americas (compared to 71.7 million in 2011).|
We expect there to be differences in the level of engagement with our brand between “followers” and “fans”, as defined in the Survey. We have not identified any practical way to measure these differences in consumer behavior and any references to our fans and followers should be viewed in that light.
To calculate the number of fans and followers from the approximately 54,000 responses, Kantar applied assumptions based on third-party data sets covering certain factors including population size, country specific characteristics such as wealth and GDP per capita, and affinity for sports and media penetration. Kantar then extrapolated the results to the rest of the world, representing an extrapolated adult population of 5 billion people. However, while Kantar believes the extrapolation methodology was robust and consistent with consumer research practices, as with all surveys, there are inherent limitations in extrapolating survey results to a larger population than those actually surveyed. As a result of these limitations, our number of followers and fans may be significantly less or significantly more than the extrapolated survey results. Kantar’s extrapolated results also accounted for non-internet users. To do so, Kantar had to make assumptions about the preferences and behaviors of non-internet users in those countries surveyed. For surveyed markets with especially low internet penetration, these assumptions reduced the number of our followers in those countries and there is no guarantee that the assumptions applied are accurate. Survey results also account only for claimed consumer behavior rather than actual consumer behavior and as a result, survey results may not reflect real consumer behavior with respect to football or the consumption of our content and products. The Survey indicates that the information that it contains has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that the survey results are reliable, we have not independently verified the data contained in the survey.
In addition to the Survey, this Annual Report references the following industry publications and third-party studies:
|●||television viewership data compiled by futures sports + entertainment—Mediabrands International Limited for the 2021/22 season (the “Futures Data”); and|
|●||a paper published by AT Kearney, Inc. in 2014 entitled “Winning in the Business of Sports” (“AT Kearney”).|
SELECTED FINANCIAL DATA
We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The selected consolidated financial data (including statement of profit or loss data, other data and balance sheet data) presented as of and for the years ended 30 June 2022, 2021, 2020, 2019 and 2018 has been derived from our audited consolidated financial statements and the notes thereto (our audited consolidated financial statements as of and for the years ended 30 June 2019 and 2018 are not included in this Annual Report). Our historical results for any prior period are not necessarily indicative of results expected in any future period.
The selected historical financial information presented in the tables below should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements and accompanying notes. The audited consolidated financial statements and the accompanying notes as of 30 June 2022 and 2021 and for the years ended 30 June 2022, 2021 and 2020 have been included elsewhere in this Annual Report.
Unless otherwise specified, all financial information included in this Annual Report has been stated in pounds sterling.
Year ended 30 June
Statement of profit or loss data:
(£’000, unless otherwise indicated)
Revenue from contracts with customers (1)
Operating expenses — before exceptional items
Employee benefit expenses
Other operating expenses
Depreciation and impairment
Operating expenses — exceptional items
Total operating expenses
Operating (loss)/profit before profit on disposal of intangible assets
Profit on disposal of intangible assets
Operating (loss)/ profit
Net finance (costs)/income
(Loss)/profit before income tax
Income tax credit/(expense)(2)
(Loss)/profit for the year(1)/(2)
Weighted average number of ordinary shares (thousands)
Diluted weighted average number of ordinary shares (thousands)(3)
Basic (loss)/earnings per share (pence) (1)/(2)
Diluted (loss)/earnings per share (pence) (1)/(2)/(3)
For the year ended 30 June 2022, the Old Trafford Stadium, Museum and Stadium Tour and Megastore operations were open to visitors throughout and all matches in the year operated at full capacity. This resulted in a significant increase in Matchday revenue in the year, compared to the year ended 30 June 2021 in which all but one match was played behind closed doors. Commercial revenue also increased in the year as a result of new sponsorship agreements, such as our training kit agreement with Tezos that began in February 2022, as well as the return of fans to the Manchester United Megastore. These increases were partially offset by a decrease in Broadcasting revenue as a result of fewer games being played in the period with the prior year including the impact of completing the COVID-19 affected 2019/20 season, as well as increased operating expenses due to increased investment in the first team playing squad. Accordingly, this resulted in a loss for the year ended 30 June 2022 and basic and diluted loss per share.
For the year ended 30 June 2021, the Old Trafford Stadium, Museum and Stadium Tour operations remained closed to visitors throughout the financial year until part way through the fourth fiscal quarter. In line with government guidelines, and with a variety of safety measures and protocols in place, including reduced fan capacity, Old Trafford Stadium welcomed back 10,000 supporters for the final home match of the season. All matches prior to this were played behind closed doors. Furthermore, the first team’s pre-season tour, scheduled for the start of fiscal 2021, had to be cancelled due to travel restrictions and the Old Trafford Megastore was closed for parts of the year due to government-imposed restrictions. The impact of the above is a reduction in Matchday and Commercial revenues for the year ended 30 June 2021. This was partially offset by increased Broadcasting revenues due to the men’s first team’s participation in the UEFA Champions League, strong performance in both the Premier League and the UEFA Europa League, and the impact of completing the 2019/20 domestic and UEFA competitions at the start of fiscal 2021 as well as a decrease in other operating expenses due to reduced business activity as a result of COVID-19. The Group did not rely on the government furlough scheme available during the COVID-19 pandemic. Accordingly, the above resulted in a loss for the year ended 30 June 2021 and basic and diluted loss per share.
The US federal corporate income tax rate reduced from 35% to 21% following the substantive enactment of US tax reform on 22 December 2017. This necessitated a re-measurement of the existing US deferred tax position in the period to 31 December 2017. As a result, the tax expense for the year ended 30 June 2018 included a non-cash tax accounting write off of £49.0 million. Accordingly, this resulted in a loss for the year ended 30 June 2018 and basic and diluted loss per share.
Year ended 30 June
(£’000, unless otherwise indicated)
Retail, merchandising, apparel & products licensing revenue
Dividends declared per share ($)
Dividends declared per share (£ equivalent)
As of 30 June
Balance sheet data:
Cash and cash equivalents
We define Adjusted EBITDA as (loss)/profit for the year before depreciation and impairment, amortization, profit on disposal of intangible assets, exceptional items, net finance income/costs, and tax. Adjusted EBITDA is a non-IFRS measure and not a uniformly or legally defined financial measure. Adjusted EBITDA is not a substitute for IFRS measures in assessing our overall financial performance. Because Adjusted EBITDA is not a measurement determined in accordance with IFRS, and is to varying calculations, Adjusted EBITDA may not be comparable to other similarly titled measures presented by other companies. Adjusted EBITDA is included in this Annual Report because it is a measure of our operating performance and we believe that Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. We also believe Adjusted EBITDA is useful to our management and investors as a measure of comparative operating performance from year to year and among companies as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our asset base (primarily depreciation, impairment and amortization), material volatile items (primarily profit on disposal of our intangible assets and exceptional items), capital structure (primarily finance costs/income), and items outside the control of our management (primarily taxes).
Our management also uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for an analysis of our results as reported under IFRS as issued by the IASB.
The following is a reconciliation of (loss)/profit for the years presented to Adjusted EBITDA:
Year ended 30 June
(Loss)/profit for the year
Net finance costs/(income)
Profit on disposal of intangible assets
Depreciation and impairment
Twelve months ended 30 June
Home games played(4):
Away games played(4):
Total games played(4):
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
CAPITALIZATION AND INDEBTEDNESS
REASONS FOR THE OFFER AND USE OF PROCEEDS
Investment in our Class A ordinary shares involves a high degree of risk. We expect to be exposed to some or all of the risks described below in our future operations. Any of the risk factors described below, as well as additional risks of which we are not currently aware, could affect our business operations and have a material adverse effect on our business, results of operations, financial condition, cash flow and prospects and cause the value of our shares to decline. Moreover, if and to the extent that any of the risks described below materialize, they may occur in combination with other risks which would compound the adverse effect of such risks on our business, results of operations, financial condition, cash flow and prospects.
Risks Related to Our Business
The COVID-19 pandemic has had, and may continue to have, a material impact on our business, results of operations, financial position and cash flows.
We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our commercial and Matchday operations, our sponsorship and credit agreements, and our employees, fans, sponsors, customers and suppliers. COVID-19 had a significant adverse impact on our reported results for the year ended 30 June 2021. The impact was primarily due to a reduction in commercial and Matchday revenues following the cancellation of the first team’s pre-season tour at the start of fiscal 2021 due to travel restrictions, COVID-19 related variations and all matches prior to the final home match of the season played behind closed doors in line with regulatory and organizational mandates set forth by governing bodies. Fans were welcomed back to the Old Trafford stadium at a reduced capacity of 10,000 for the final home match of the season. Further, Museum and Stadium Tour operations remained closed to visitors throughout the financial year until part way through the fourth fiscal quarter and the Old Trafford Megastore was closed for part of the year due to government- imposed restrictions. For the year ended 30 June 2022, the Old Trafford Stadium, Museum and Stadium Tour and Megastore operations were open to visitors throughout and all matches in the year operated at full capacity. However, there can be no certainty that the currently lifted UK government-imposed restrictions and present full capacity at Old Trafford stadium will continue. The nature of the pandemic, including as a result of variants, may result in government restrictions being re-imposed in the future or reduced fan attendance based on individuals’ risk tolerance. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments including, without limitation, continuation of matches played in front of a crowd and at full capacity, which are highly uncertain and cannot be accurately predicted. The continued impact from the COVID-19 outbreak, including from variants, and actions by government authorities to contain the outbreak or treat its impact may further impact our operations. As such, we are unable to predict with certainty the ultimate further impact that COVID-19 may have on our business, future results of operations, financial position or cash flows. We are also unable to predict with certainty the impact that COVID-19 may continue to have on our fans, sponsors, customers, and suppliers; however, any material effect on these parties could negatively impact us. In addition, if there is a future resurgence of COVID-19, the negative impacts on our business may be exacerbated. If we are unable to sufficiently manage and mitigate the strategic and operational impact of COVID-19, in the short- and medium-term, the future results of our business may be materially negatively impacted. Though we continue to monitor the COVID-19 pandemic closely, this situation is changing rapidly and additional impacts may arise that we are not aware of currently. Moreover, to the extent that the COVID-19 pandemic harms our business and operations, many of the other risks described in this “Risk Factors” section should be interpreted as heightened risks.
If we are unable to maintain and enhance our brand and reputation, particularly in new markets, or if events occur that damage our brand and reputation, our ability to expand our follower base, sponsors, and commercial partners or to sell significant quantities of our products may be impaired.
The success of our business depends on the value and strength of our brand and reputation. Our brand and reputation are also integral to the implementation of our strategies for expanding our follower base, sponsors and commercial partners. To be successful in the future we believe we must preserve, grow and leverage the value of our brand across all of our revenue streams. For instance, we have in the past experienced, and we expect that in the future we will continue to receive, a high degree of media coverage. Unfavorable publicity regarding our men’s first team’s performance in league and cup competitions or their behavior off the field, our ability to attract and retain certain players and coaching staff or actions by or changes in our ownership, could negatively affect our brand and reputation. Failure to respond effectively to negative publicity could also further erode our brand and reputation. In addition, events in the football industry, even if unrelated to us, may negatively affect our brand or reputation. As a result, the size, engagement and loyalty of our follower base and the demand for our products may decline. Damage to our brand or reputation or loss of our followers’ commitment for any of these reasons could impair our ability to expand our follower base, sponsors and commercial partners or our ability to sell significant quantities of our products, which would result in decreased revenue across our revenue streams and have a material adverse effect on our business, results of operations, financial condition and cash flow, as well as require additional resources to rebuild our brand and reputation.
In addition, maintaining and enhancing our brand and reputation may require us to make substantial investments. We cannot assure you that such investments will be successful. Failure to successfully maintain and enhance the Manchester United brand or our reputation or excessive or unsuccessful expenses in connection with this effort could have a material adverse effect on our business, results of operations, financial condition and cash flow.
Our business is dependent upon our ability to attract and retain key personnel, including players.
We are highly dependent on members of our management, coaching staff and our players. Competition for talented players and staff is, and will continue to be, intense. Our ability to attract and retain the highest quality players for our men’s first team and youth academy, as well as coaching staff, is critical to our men’s first team’s success in league and cup competitions, increasing popularity and, consequently, critical to our business, results of operations, financial condition and cash flow. Our success and many achievements over the last twenty years does not necessarily mean that we will continue to be successful in the future, whether as a result of changes in player personnel, coaching staff or otherwise. A downturn in the performance of our men’s first team could adversely affect our ability to attract and retain coaches and players. Further, in 2020, the United Kingdom formally left the EU and as a result we are no longer able to rely on European regulations relating to the movement of players between the United Kingdom and the European Economic Area (“EEA”). See “—The departure of the United Kingdom from the European Union may adversely affect our operations and financial results.” In addition, our popularity in certain countries or regions may depend, at least in part, on fielding certain players from those countries or regions. While we enter into employment contracts with each of our key personnel with the aim of securing their services for the term of the contract, the retention of their services for the full term of the contract cannot be guaranteed due to possible contract disputes or approaches by other clubs. Our failure to attract and retain key personnel could have a negative impact on our ability to effectively manage and grow our business.
We are dependent upon the performance and popularity of our men’s first team.
Our revenue streams are driven by the performance and popularity of our men’s first team. Significant sources of our revenue are the result of historically strong performances in English domestic and European competitions, specifically the Premier League, the FA Cup, the EFL Cup, the Champions League and the Europa League. Our revenue varies significantly depending on our men’s first team’s participation and performance in these competitions. Our men’s first team’s performance can affect all four of our revenue streams:
|●||sponsorship revenue through sponsorship relationships;|
|●||retail, merchandising, apparel & product licensing revenue through product sales;|
|●||Broadcasting revenue through the frequency of appearances, performance based share of league broadcasting revenue, Champions League/Europa League/Europa Conference League distributions and MUTV distribution through linear and digital platforms; and|
|●||Matchday revenue through ticket sales.|
Our men’s first team currently plays in the Premier League, the top football league in England. Our performance in the Premier League directly affects, and a weak performance in the Premier League could adversely affect, our business, results of operations, financial condition and cash flow. For example, our revenue from the sale of products, media rights, tickets and hospitality would fall considerably if our men’s first team were relegated from, or otherwise ceased to play in, the Premier League, the Champions League, the Europa League or the Europa Conference league.
We cannot ensure that our men’s first team will be successful in the Premier League or in the other leagues and tournaments in which it plays. Relegation from the Premier League or a general decline in the success of our men’s first team, particularly in consecutive seasons, would negatively affect our ability to attract or retain talented players and coaching staff, as well as supporters, sponsors and other commercial partners, which would have a material adverse effect on our business, results of operations, financial condition and cash flow.
It may not be possible to renew or replace key commercial agreements on similar or better terms, or attract new sponsors.
Our Commercial revenue for each of the years ended 30 June 2022, 2021 and 2020 represented 44.2%, 47.0% and 54.8% of our total revenue, respectively. The substantial majority of our Commercial revenue is generated from commercial agreements with our sponsors, and these agreements have finite terms. When these contracts expire, we may not be able to renew or replace them with contracts on similar or better terms or at all. Our most important commercial contracts include contracts with global, regional and supplier sponsors representing industries including sportswear, remote connectivity software, blockchain, spirits, automotive, hotels, betting and kitchen and bathroom fixtures and generators, which typically have contract terms of two to five years.
If we fail to renew or replace these key commercial agreements on similar or better terms, we could experience a material reduction in our Commercial revenue. Such a reduction could have a material adverse effect on our overall revenue and our ability to continue to compete with the top football clubs in England and Europe.
As part of our business plan, we intend to continue to grow our commercial portfolio by developing and expanding our product categorized approach, which will include partnering with additional sponsors. We may not be able to successfully execute our business plan in promoting our brand to attract new sponsors. We cannot assure you that we will be successful in implementing our business plan or that our Commercial revenue will continue to grow at the same rate as it has in the past or at all. Any of these events could negatively affect our ability to achieve our development and commercialization goals, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
The underlying probability of being unable to renew or replace key contracts on similar or more favorable terms, or to partner with additional sponsors, has increased as the impact of COVID-19 and other economic pressures are felt across the global economy. As a result, there may be a shift in focus for the majority of companies in the short- to medium-term, as these companies reduce perceived “excess” spend on marketing in favor of protecting the operational and financial stability of the entity. See “—The COVID-19 pandemic has had, and may continue to have, a material impact on our business, results of operations, financial position and cash flows.”
Negotiation, pricing and terms of key media contracts are outside of our control and those contracts may change in the future.
For each of the years ended 30 June 2022, 2021 and 2020, 65.3%, 67.5% and 80.3% of our Broadcasting revenue, respectively, was generated from the media rights for Premier League matches, and 31.4% 29.0% and 12.0% of our Broadcasting revenue, respectively, was generated from the media rights for UEFA matches. Contracts for these media rights and certain other revenue for those competitions (both domestically and internationally) are negotiated collectively by the Premier League and the Union of European Football Associations (“UEFA”) respectively. We are not a party to the contracts negotiated by the Premier League and UEFA. Further, we do not participate in and therefore do not have any direct influence on the outcome of contract negotiations. As a result, we may be subject to media rights contracts with media distributors with whom we may not otherwise contract or media rights contracts that are not as favorable to us as we might otherwise be able to negotiate individually with media distributors. Furthermore, the limited number of media distributors bidding for Premier League and UEFA club competition media rights may result in reduced prices paid for those rights and, as a result, a decline in revenue received from media contracts.
In addition, although an agreement has been reached for the sale of Premier League broadcasting rights through the end of the 2024/25 football season and for the sale of UEFA club competition broadcasting rights through the end of the 2023/24 football season, future agreements may not maintain our current level of Broadcasting revenue. Furthermore, existing broadcasting agreements have been and may continue to be, and future broadcasting agreements may also be, adversely impacted as a result of the COVID-19 pandemic. See “—The COVID-19 pandemic has had, and may continue to have, a material impact on our business, results of operations, financial position and cash flows.”
Future intervention by the European Commission (“EC”), the Court of Justice of the European Union (“CJEU”), UK authorities, or other competent authorities and courts having jurisdiction may also have a negative effect on our revenue from media rights in the EEA. Enforcement of competition laws and changes to copyright regimes may require changes to sales models that could negatively affect the amount which copyright holders, such as the Premier League, are able to derive from the exploitation of rights within the EU. As a result, our Broadcasting revenue from the sale of those rights could decrease.
It is likely that there will be future regulatory intervention by the EC relating to the grant of exclusive licenses of content on a territorial basis within the EEA insofar as they prohibit or limit the cross-border provision by satellite or internet transmission of retail pay-TV services in response to unsolicited demand (so-called “passive sales”). In the cases of the Premier League & others vs. QC Leisure & Others / Karen Murphy vs. Media Protection Services, the CJEU ruled that EU free movement rules prevented enforcement of national laws to prevent importation and sale of decoding devices marketed in other Member States. It is an open question whether this finding is confined to broadcasting by satellite. The CJEU held further that EU competition rules prohibit any agreement designed to guarantee absolute territorial exclusivity by restricting passive sales within the EU (i.e. by obliging broadcasters not to meet unsolicited demand for decoding devices enabling access to the right holder’s protected subject-matter with a view to their use outside the territory covered by the license agreement).
Subsequently, in January 2014 the EC launched a competition investigation into exclusive licensing arrangements between US Studios and various platforms in Europe (the major platform in each of the five largest Member States). In July 2015, the EC issued a Statement of Objections in Case COMP/40023 – Cross-border access to pay-TV setting out its preliminary view that certain provisions in the license agreements between the studios and Sky UK would eliminate cross-border competition and constitute a violation of EU competition rules. According to the EC, these provisions require Sky UK to block or limit access to films through geo-blocking its online services or through its satellite pay-TV services to consumers outside of the United Kingdom and Ireland (and thus prevent Sky UK from responding to passive sales requests). The EC was carrying out parallel investigations into cross-border access to pay-TV services in France, Italy, Germany and Spain. Studios and platforms argue that EU law does not preclude enforcement of their copyright and that the restrictions are necessary to ensure adequate financing of content creation because content value varies considerably across Member States.
On 22 April 2016, the EC announced that Paramount, while not agreeing with the concerns expressed in the Statement of Objections, had offered to settle the case by offering a series of commitments, including an undertaking not to enter into pay-TV agreements that prohibit their licensees from responding to passive sales requests. The commitments cover both linear pay-TV services and (when covered by the broadcaster’s licenses) subscription video-on-demand services. The EC accepted these commitments on 27 July 2016. On 8 December 2016, the French TV broadcaster Groupe Canal + brought an action seeking annulment of the EC’s decision to accept the commitments. On 12 December 2018, the EU General Court dismissed the appeal and upheld the EC decision as lawful in identifying competition concerns and finding the commitments suitable to resolve them. Shortly before and on the same and following day of the General Court’s judgment, Disney, NBC Universal, Sony Pictures, Warner Bros. and Sky also offered commitments, which the EC accepted on 7 March 2019 and closed the investigation. The commitments foresee that the restrictive clauses will not be applied nor re-introduced in the film licensing contracts, without prejudice to the studios’ rights under copyright law or the Portability Regulation. On 15 February 2019, Canal + appealed the General Court’s judgment before the CJEU and on 19 June 2019, it also appealed before the General Court the EC decision accepting the commitments by Sky and four Hollywood studios.
On 20 December 2020, the CJEU overturned the General Court’s judgment of 12 December 2018; the CJEU found that the General Court had erred in law in its assessment of the proportionality of the adverse effects on the interests of third parties, such as Canal +, resulting from the EC acceptance of the commitments offered by Paramount. In particular, the CJEU considered that the General Court could not refer such contracting partners to the national courts in order to have their contractual rights enforced; national courts could not decide contrary to an EC decision by declaring the relevant clauses compatible or requiring an operator to breach its commitments which have been made binding by that decision. Instead, the CJEU found that when assessing commitments proposed the EC must also assess the proportionality of adverse effects of the commitments on the interests of third parties so that those third parties’ rights are not rendered meaningless - which was the case for the contractual rights of Canal + vis-à-vis Paramount. Consequently, the CJEU set aside the General Court’s judgment and gave final judgment in the matter by annulling the EC decision accepting Paramount’s commitments. On 31 March 2021 the EC withdraw its decision of 7 March 2019 accepting the commitments by Sky and four Hollywood studios and closed the proceedings in the case, since the scope of commitments was essentially identical to the annulled commitments by Paramount; and the pending appeal by Canal + against the now withdrawn decision was closed without need for adjudication by the General Court on 6 May 2021. While these investigations had targeted film content, any future decision could be applicable to any pay-TV content, including sport.
In addition to this regulatory action, the EU as part of its Digital Single Market (“DSM”) strategy adopted on 8 June 2017 the Portability Regulation, which is designed to enable consumers to access their content services while travelling across Europe. The Portability Regulation became applicable on 20 March 2018. The EU has also adopted a regulation on unjustified geo-blocking, which became applicable on 3 December 2018. Copyright protected content is excluded but the EC must review and report on the exclusion. On 30 November 2020, the EC published this report. The report identified potential benefits of extending the scope of the regulation to cover audio-visual content, depending on copyright-licensing practices and on copyright-law considerations. However, it also identified the challenges and potential impact of such an extension on the overall dynamics of the audio-visual sector. Therefore, the EC would launch a stakeholder dialogue with the sector to discuss concrete ways of improve consumers’ access to audiovisual content across the EU, before considering any follow-up measures. A further stock-taking exercise should be planned for 2022, the outcome of which will determine any EC proposal for any legislative amendments or follow-up actions. This may lead to proposals for inclusion of content protected by copyright and neighbouring rights.
As part of the DSM initiative, the EC has also sought to modernize EU copyright rules to allow for wider access to online content across the EU, including by extending rights clearance mechanisms in the Satellite and Cable Directive. The EC published its proposal for a Regulation on Online Transmissions on 14 September 2016, which in particular contains the proposal that the country of origin principle be extended to online broadcast services. In practice, this would mean that licenses for simulcast and catch-up rights, for example, for the United Kingdom would be construed as covering the entire EEA (as long as the United Kingdom remains subject to EU law). The European Parliament and the Council subsequently turned the draft Regulation on Online Transmissions into a Directive, including substantial amendments limiting the country of origin principle. As a result, the country of origin principle will apply to radio broadcasts, but not to television broadcasts of sports events. In parallel, the revised Copyright Directive has inter alia strengthened the position of rights owners by making online platforms responsible for taking certain actions against user-uploaded content which violates copyright. Both Directives were adopted in April 2019. The deadline for implementation of both Directives was 7 June 2021. As at 19 May 2022, a number of Member States have still not implemented the Directives into national law including (in relation to the Online Transmissions Directive) Bulgaria, Cyprus, Greece, Ireland, Latvia, Poland, Portugal, Slovenia, Slovakia and Finland, and (in relation to the Copyright Directive), Belgium, Bulgaria, Cyprus, Denmark, Greece, France, Latvia, Poland, Slovenia, Slovakia, Finland and Sweden). All other Member States have implemented both Directives into national law.
In addition, also as part of the DSM initiative, the European Parliament and the Council adopted on 6 November 2018, a revision of the Audiovisual Media Services. The deadline for transposition into national law was 19 September 2020. As at 3 August 2022, all member states other than the Czech Republic, Ireland, Slovakia had notified the EC of its implementation into law. This Directive applies to traditional TV broadcasters, with the revision inter alia extending the scope for some provisions to also cover video-sharing platforms. The revision has not affected Article 14 on the possibility of national measures ensuring the non-exclusive broadcast of events of major importance for society.
Finally, as part the DSM initiative and following stakeholder consultations, on 15 December 2020, the EC proposed two legislative initiatives to upgrade rules governing digital services in the EU: the Digital Services Act (“DSA”) and the Digital Markets Act (“DMA”). The DSA seeks to update the rules concerning e-commerce, for instance, by providing for enforceable obligations and increased accountability rules for all digital services that connect consumers to goods, services, or content, in relation to, for example, users’ safety and trust, harmful/illegal online content, content moderation and removal, and advertisement targeting. These rules would be enforced by designated national competent authorities. The DMA, which would be enforced by the EC, seeks to address market imbalances associated with large online platforms acting as gatekeepers, defined under certain criteria. To this end, the DMA foresees obligations on their daily operations, for example, by enabling transparency for advertisers, ensuring interoperability with competing third-party software in certain cases, and prohibiting gatekeepers to block users from un-installing software or apps. In contrast, the EC will not pursue separately the possible introduction of a broader ex ante new competition tool addressing structural competition problems in a timely and effective manner. The EU reached political agreement on the DMA in March 2022 and the DSA in April 2022. The European Parliament and Council of Ministers each approved the DMA in July 2022. The European Parliament approved the DSA in July 2022, and approval by the Council of Ministers is likely to follow in September 2022. Both Acts will come into force 20 days after publication in the Official Journal. The DSA will be directly applicable across the EU on 1 January 2024, or 15 months after coming into force if later. The DMA will be directly applicable 6 months after coming into force.
European competitions cannot be relied upon as a source of income.
Qualification for the Champions League is largely dependent upon our men’s first team’s performance in the Premier League and, in some circumstances, the Champions League or Europa League in the previous season. Qualification for the Champions League cannot, therefore, be guaranteed. Failure to qualify for the Champions League would result in a material reduction in revenue for each season in which our men’s first team did not participate. To help mitigate this impact the majority of playing contracts for our men’s first team include step-ups in remuneration which are contingent on participation in the group stage of the Champions League. Inclusive of Broadcasting revenue, prize money and Matchday revenue, our combined Broadcasting and Matchday revenue related to European competitions was £75.0 million, £73.8 million and £20.9 million for each of the years ended 30 June 2022, 2021 and 2020, respectively. As a result of our men’s first team performance during the 2021/22 season, our men’s first team will participate in the 2022/23 Europa League rather than the Champions League.
In addition, our participation in the Champions League, Europa League or Europa Conference League may be influenced by other factors beyond our control. For example, the number of places in each European competition available to the clubs of each national football association in Europe can vary from year to year based on a ranking system. If the performance of English clubs in Europe declines, the number of places in each European competition available to English clubs may decline and it may be more difficult for our men’s first team to qualify for European competition in future seasons. Further, the rules governing qualification for European competitions (whether at the European or national level) may change and make it more difficult for our men’s first team to qualify for European competition in future seasons.
We are a founder member of the European Club Association (“ECA”), an independent organization set up to work with football governing bodies to protect and promote the interests of football clubs at the European level.
UEFA implemented changes to the format of the Champions League and Europa League, which took effect from 2018/19. The key changes related to the access list for both competitions and the methodology for financial distributions. With respect to the Champions League, the top four clubs from the four top-ranked UEFA national associations (of which England is currently one) qualify automatically for the group stage of the Champions League. With respect to the financial distribution methodology, in addition to the previous three-pillar system (starting fee, performance fees and market pool), UEFA introduced a fourth pillar being the individual club coefficient. The individual club coefficient is determined by reference to past performance in UEFA club competitions over a ten-year period with additional points for historical winners of UEFA club competitions.
In May 2022, UEFA announced a new format for the Champions League which will begin in the 2024/25 season. This format sees the number of participating teams increased from 32 to 36 with the number of Group Stage matches increasing from 6 to 8. The new format provides scope for one more place for an English club in the competition dependent on the collective performance of clubs from that nation in the previous season. Two places in the competition will be allocated in this manner, one to each nation that performed best collectively in the preceding season. In addition, UEFA Club Competitions SA (“UCC SA”) was established by UEFA to advise and make recommendations to UEFA on strategic business matters and opportunities concerning club competitions. Half of the administration board is appointed by UEFA and the other half by the ECA.
In December 2018, UEFA approved the introduction of a third UEFA club competition to run alongside both the Champions League and Europa League. The competition, known as the UEFA Europa Conference League (“Europa Conference League”), commenced in 2021/22. The competition does not have an impact on the Champions League but does reduce the number of teams competing in the Europa League from 48 teams to 32. This results in three competitions being held with 32 teams competing in each, compared to the previous structure of 32 teams in the Champions League and 48 teams in the Europa League. The winner of the new competition will be entitled to enter the following season’s UEFA Europa League group stage. England’s overall access quota remains unchanged, but the quota now applies across the three UEFA competitions. The top four clubs from the four top-ranked UEFA national associations still automatically qualify for the Champions League group stage. The team finishing in fifth position in the Premier League and the FA Cup winners will qualify for the Europa League group stage, unless the FA Cup winners finish in positions one to five in the Premier League, in which case the team finishing in sixth position will also qualify for the Europa League group stage. The EFL Cup winners will qualify for the Europa Conference League play-offs unless they have already qualified for the Champions League or Europa League, in which case the team finishing in sixth position (or seventh position if the sixth has already qualified for the Champions League or Europa League) will take their place. Financial distribution methods for the Champions League and the Europa League remain unchanged.
Moreover, because of the prestige associated with participating in the European competitions, particularly the Champions League, failure to qualify for any European competition, particularly for consecutive seasons, could negatively affect our ability to attract and retain talented players and coaching staff, as well as supporters, sponsors and other commercial partners. Failure to participate in the Champions League for two or more consecutive seasons would also reduce annual payments under the agreement with adidas by 30% of the applicable payment for the year in which the second or other consecutive season of non-participation falls. Any one or more of these events could have a material adverse effect on our business, results of operation, financial condition and cash flow.
Our business depends in part on relationships with certain third parties.
We consider the development of our commercial assets to be central to our ongoing business plan and a driver of future growth. For example, our current contract with adidas that began with the 2015/16 season provides them with certain global technical sponsorship and dual-branded licensing rights. While we expect to be able to continue to execute our business plan in the future with the support of adidas, we remain subject to these contractual provisions and our business plan could be negatively impacted by non-compliance or poor execution of our strategy by adidas. Further, any interruption in our ability to obtain the services of adidas or other third parties or deterioration in their performance could negatively impact this portion of our operations. Furthermore, if our arrangement with adidas is terminated or modified against our interest, we may not be able to find alternative solutions for this portion of our business on a timely basis or on terms favorable to us or at all.
In the future, we may enter into additional arrangements permitting third parties to use our brand and trademarks. The steps we take to carefully select our partners may not lead to successful arrangements. Our partners may fail to fulfill their obligations under their agreements or have interests that differ from or conflict with our own. For example, we are dependent on our sponsors and commercial partners to effectively implement quality controls over products using our brand and/or trademarks. The inability of such sponsors and commercial partners to meet our quality standards, including as a result of the COVID-19 pandemic and other economic pressures, could negatively affect consumer confidence in the quality and value of our brand, which could result in lower product sales. Any one or more of these events could have a material adverse effect on our business, results of operation, financial condition and cash flow.
We are exposed to credit related losses in the event of non-performance by counterparties to Premier League and UEFA media contracts as well as our key commercial and transfer contracts.
We derive the substantial majority of our Broadcasting revenue from media contracts negotiated by the Premier League and UEFA with media distributors, and although the Premier League obtains guarantees to support certain of its media contracts, typically in the form of letters of credit issued by commercial banks, it remains our single largest credit exposure. We derive our Commercial and sponsorship revenue from certain corporate sponsors, including global, regional and supplier sponsors (which includes new businesses operating in emerging markets) in respect of which we may manage our credit risk by seeking advance payments, installments and/or bank guarantees where appropriate. The substantial majority of this revenue is derived from a limited number of sources. We are also exposed to other football clubs globally for the payment of transfer fees on players. Depending on the transaction, some of these fees are paid to us in installments. We try to manage our credit risk with respect to those clubs by requiring payments in advance or, in the case of payments on installment, requiring bank guarantees on such payments in certain circumstances. However, we cannot ensure these efforts will eliminate our credit exposure to other clubs. A change in credit quality at one of the media broadcasters for the Premier League or UEFA, one of our sponsors or a club to whom we have sold a player can increase the risk that such counterparty is unable or unwilling to pay amounts owed to us. The failure of a major television broadcaster for the Premier League or UEFA club competitions to pay outstanding amounts owed to its respective league or the failure of one of our key sponsors or a club to pay outstanding amounts owed to us could have a material adverse effect on our business, results of operations, financial condition and cash flow.
The residual counterparty credit risk from our commercial partnerships or the failure of any significant customer or another club, and non-fulfillment of contractual obligations, has increased as a result of certain global and regional partners requesting payment deferrals while dealing with the fallout of COVID-19. This has the potential to significantly impact club operations if a major commercial partner were to defer or default on payments. See “—The COVID-19 pandemic has had, and may continue to have, a material impact on our business, results of operations, financial position and cash flows.”
Matchday revenue from our supporters is a significant portion of overall revenue.
A significant amount of our revenue derives from ticket sales and other Matchday revenue for our men’s first team matches at Old Trafford and our share of gate receipts from domestic cup matches. In particular, the revenue generated from ticket sales and other Matchday revenue at Old Trafford will be highly dependent on the continued attendance at matches of our individual and corporate supporters as well as the number of home matches we play each season. During each of the 2021/22, 2020/21 and 2019/20 seasons, we played 26, 34 and 24 home matches respectively and our Matchday revenue was £110.5 million, £7.1 million and £89.8 million for the years ended 30 June 2022, 2021 and 2020, respectively. Matchday revenue for the years ended 30 June 2021 and 30 June 2020 was significantly impacted by the COVID-19 pandemic. For the year ended 30 June 2021, 33 of our 34 home matches were played behind closed doors. Fans were in attendance for the final home match of the season at a reduced capacity in line with government guidelines. For the year ended 30 June 2020, government-imposed restrictions from mid-March 2020 resulted in the deferral of a number of matches to the 2020/21 financial year, as well as all remaining matches being played behind closed doors. We returned to full capacity for the entirety of the 2021/22 season. Match attendance is influenced by a number of factors, some of which are partly or wholly outside of our control. These factors include the success of our men’s first team, broadcasting coverage and general economic conditions in the United Kingdom, which affect personal disposable income and corporate marketing and hospitality budgets. A reduction in Matchday attendance, including as a result of the COVID-19 pandemic and related regulations to contain it, could continue to have a material adverse effect on our Matchday revenue and our overall business, results of operations, financial condition and cash flow. See “—The COVID-19 pandemic has had, and may continue to have, a material impact on our business, results of operations, financial position and cash flows.”
The markets in which we operate are highly competitive, both within Europe and internationally, and increased competition could cause our profitability to decline.
We face competition from other football clubs in England and Europe. In the Premier League, investment from wealthy team owners has led to teams with deep financial backing that are able to acquire top players and coaching staff, which could result in improved performance from those teams in domestic and European competitions. As the Premier League continues to grow in popularity, the interest of wealthy potential owners may increase, leading to additional clubs substantially improving their financial position. Competition from European clubs also remains strong. Despite the adoption of the UEFA financial fair play initiative, a set of financial monitoring rules on clubs participating in the Champions League and Europa League, and the Premier League Profitability and Sustainability Rules, a similar set of rules monitoring Premier League clubs, European and Premier League football clubs are spending substantial sums on transfer fees and player salaries. Competition from inside and outside the Premier League has led to higher salaries for our players as well as increased competition on the field. The increase in competition could result in our men’s first team finishing lower in the Premier League than we have in the past and jeopardizing our qualification for or results in European competitions. Competition within England could also cause our men’s first team to fail to advance in the FA Cup and EFL Cup.
In addition, from a commercial perspective, we actively compete across many different industries and within many different markets. We believe our primary sources of competition, both in Europe and internationally, include, but are not limited to:
|●||other businesses seeking corporate sponsorships and commercial partners such as sports teams, other entertainment events and television and digital media outlets;|
|●||providers of sports apparel and equipment seeking retail, merchandising, apparel & product licensing opportunities;|
|●||digital content providers seeking consumer attention and leisure time, advertiser income and consumer e-commerce activity;|
|●||other types of television programming seeking access to broadcasters and advertiser income; and|
|●||alternative forms of corporate hospitality and live entertainment for the sale of Matchday tickets such as other live sports events, concerts, festivals, theater and similar events.|
All of the above forms of competition could have a material adverse effect on any of our four revenue streams and our overall business, results of operations, financial condition and cash flow.
A cyber-attack on, or disruption to, our IT systems or other systems utilized in our operations could compromise our operations, adversely impact our reputation and subject us to liability.
As a high-profile brand we are susceptible to the risk of a cyber-attack on our IT systems or other third-party systems utilized in our operations. We experience cyber-attacks and other security incidents of varying degrees from time to time. For example, we experienced such an attack in or about November 2020, which resulted in certain non-consumer data being compromised and the disruption of our enterprise systems and applications, prior to restoration of secure computing operations. In response to the attack, we
have implemented further controls and planned for and taken other preventative actions to further strengthen our systems against future attacks. However, we cannot assure you that such measures will provide absolute security, that we will be able to react in a timely manner, or that our remediation efforts following any past or future attacks will be successful. A cyber-attack could disable the information technology systems we use or depend on to operate our business and give rise to the loss of significant amounts of personal data or other sensitive information, potentially subjecting us to criminal or civil sanctions or other liability. See “—We are subject to governmental regulation and other legal obligations related to privacy, data protection, data security and safeguarding. Our actual or perceived failure to comply with such obligations could harm our business.” Similarly, any disruption to or failures in our IT systems or other third-party systems utilized in our operations could have an adverse impact on our ability to operate our business and lead to reputational damage. Any of these events could have a material adverse effect on our business, results of operations, financial condition and cash flow. Furthermore, as attempted attacks continue to evolve in scope and sophistication, we may incur significant costs in modifying or enhancing our IT security systems and processes in an attempt to defend against such attacks. There can be no assurance, however, that any security systems or processes we, or third party providers on which we rely, currently have in place or that may be implemented in the future will be successful in preventing or mitigating the harm from such attacks.
We are subject to special rules and regulations regarding insolvency and bankruptcy.
We are subject to, among other things, special insolvency or bankruptcy-related rules of the Premier League and the Football Association (the “FA”). Those rules empower the Premier League board to direct certain payments otherwise due to us to the FA and its members, associate members and affiliates, certain other English football leagues and certain other entities if it is reasonably satisfied that we have failed to pay certain creditors including other football clubs, the Premier League and the Football League.
If we experience financial difficulty, we could also face sanctions under the Premier League rules, including suspension from the Premier League, European competitions, the FA Cup and certain other competitions, the deduction of league points from us in the Premier League or Football League and loss of control of player registrations. For example, the Premier League could prevent us from playing, thereby cutting off our income from ticket sales and putting many of our other sources of revenue at risk. Any of these events could have a material adverse effect on our business, results of operation, financial condition, or cash flow, as well as our ability to meet our financial obligations.
Premier League voting rules may allow other clubs to take action contrary to our interests.
The Premier League is governed by its 20 club shareholders with most rule changes requiring the support of a minimum of 14 of the clubs. This allows a minority of clubs to block changes they view as unfavorable to their interests. In addition, it allows a concerted majority of the clubs to pass rules that may be disadvantageous to the remaining six clubs. Our interests may not always align with the majority of clubs and it may be difficult for us to effect changes that are advantageous to us. At the same time, it is possible that other clubs may take action that we view as contrary to our interests. If the Premier League clubs pass rules that limit our ability to operate our business as we have planned or otherwise affect the payments made to us, we may be unable to achieve our goals and strategies or increase our revenue.
Our digital media strategy may not generate the revenue we anticipate.
We maintain contact with, and provide entertainment to, our global follower base through a number of digital and other media channels, including the internet, mobile services and applications, and social media. While we have attracted a significant number of followers to our digital media assets, including our website and mobile application, the associated future revenue and income potential is uncertain. You should consider our business and prospects in light of the challenges, risks and difficulties we may encounter in this new and rapidly evolving market, including:
|●||our ability to retain our current global follower base, build our follower base and increase engagement with our followers through our digital media assets, particularly those on third-party digital media platforms;|
|●||our ability to enhance the content offered through our digital media assets and increase our subscriber base;|
|●||our ability to effectively generate revenue from interaction with our followers through our digital media assets;|
|●||our ability to attract new sponsors and advertisers, retain existing sponsors and advertisers and demonstrate that our digital media assets will deliver value to them;|
|●||our ability to develop our digital media assets in a cost-effective manner and operate our digital media services profitably and securely;|
|●||our ability to identify and capitalize on new digital media business opportunities; and|
|●||our ability to compete with other sports and other media for users’ time.|
In addition, as we expand our digital and other media channels, including mobile services, applications, and social media, revenue from our other business sectors may decrease, including our Broadcasting revenue. As a consequence of our utilization of third-party media platforms, particularly social media, we are subject to third-party algorithms which we do not have control over. A change to these algorithms or the business strategy and operating models of these platforms may have a knock-on impact on our business. Moreover, the increase in subscriber base in some of these digital and other media channels may limit the growth of the subscriber base and popularity of other channels. Further, governmental or other regulatory actions against social media platforms could result in a loss of some or all of our social media followers on such platform. Failure to successfully address these risks and difficulties could affect our overall business, financial condition, results of operations, cash flow, liquidity and prospects.
Serious injuries to or losses of playing staff may affect our performance, and therefore our results of operations and financial condition.
Injuries to members of the playing staff, particularly if career-threatening or career-ending, could have a detrimental effect on our business. Such injuries could have a negative effect upon our men’s first team’s performance and may also result in a loss of the income that would otherwise have resulted from a transfer of that player’s registration. In addition, depending on the circumstances, we may write down the carrying value of a player on our balance sheet and record an impairment charge in our operating expenses to reflect any losses resulting from career-threatening or career-ending injuries to that player. Our strategy is to maintain a squad of men’s first team players sufficient to mitigate the risk of player injuries. However, this strategy may not be sufficient to mitigate all financial losses in the event of an injury, and as a result such injury may affect the performance of our men’s first team, and therefore our business, results of operations financial condition and cash flow.
Inability to renew our insurance policies could expose us to significant losses.
We insure against the accidental death (including death by natural causes) or permanent disablement (resulting in an inability to continue their playing career with Manchester United and/or any other club in one of the top five European leagues) of certain members of our men’s first team, although typically not at such player’s full market value. Such insurance also excludes incidents which occur while playing matches or training. We also have catastrophe coverage in the event of an incident (such as travel or terrorist related incidents) that results in the accidental death or permanent disablement of multiple members of our men’s first team playing squad. We also carry non-player related insurance typical for our business (including combined liability, property damage, business interruption, terrorism and directors and officers insurance). When any of our insurance policies expire, it may not be possible to renew them on the same terms, or at all. In such circumstances, some of our business activities and/or assets may be uninsured. If any of these uninsured business activities or assets were to suffer damage, we could suffer a financial loss. Our most valuable tangible asset is the Old Trafford stadium. An inability to renew insurance policies covering our players, Old Trafford, the Carrington training ground (“Carrington”) or other valuable assets could expose us to significant losses.
In addition to the above, for the period ending 31 December 2022, the Fédération Internationale de Football Association (“FIFA”) has confirmed that it will provide insurance coverage for loss of wages (temporary disablement), subject to a maximum period of 365 days (excluding the first 28 days) and a cap of €7.5 million per claim per player, paid by the club to our players subsequent to an injury incurred while playing for their senior national team in a match played under the FIFA international match calendar. This includes any claims arising from the 2022 World Cup and the 2022 Women’s European Championship, both of which occur in the current policy period. Neither FIFA nor national football associations are obliged to provide accidental death or permanent disablement insurance coverage for players while on international duty. These terms are subject to review when the policy is due for renewal.
Our international expansion and operations in foreign markets expose us to risks associated with international sales and operations.
We intend to continue to expand internationally and operate in select foreign markets. Managing a global organization is difficult, time consuming and expensive. Our inexperience in operating the club’s businesses globally increases the risk that any future international expansion efforts that we may undertake will not be successful. In addition, conducting international operations subjects us to risks such as the lack of familiarity with and unexpected changes in foreign regulatory requirements; difficulties in managing and staffing international operations; fluctuations in foreign exchange rates; potentially adverse tax consequences, including foreign value added tax systems, and restrictions on repatriation of earnings; the burdens of complying with a wide variety of foreign laws and legal standards; increased financial accounting and reporting burdens and complexities; the lack of strong intellectual property regimes and political, social and economic instability abroad. Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.
In many foreign countries, particularly in certain developing economies, it is not uncommon to encounter business practices that are prohibited by certain regulations, such as the UK Bribery Act 2010, the US Foreign Corrupt Practices Act and similar laws. Our and our subsidiaries’ efforts undertaken to comply with respect to these laws may not prevent our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations from taking actions in violation of such policies and procedures. Any such violation, even if prohibited by our or our subsidiaries’ policies and procedures or the law, could have a material adverse effect on our reputation, results of operations, financial condition and the price of our Class A ordinary shares.
Fluctuations in exchange rates may adversely affect our results of operations.
Our functional and reporting currency is pounds sterling and substantially all of our costs are denominated in pounds sterling. However, Broadcasting revenue from our participation in UEFA club competitions, as well as certain other revenue, is generated in Euros. We also occasionally enter into transfer agreements, commercial partner agreements and other contracts which are payable in Euros. In addition, we have US dollar foreign exchange exposure relating to our secured term loan facility and senior secured notes as well as Commercial revenue from certain sponsors. We hedge the foreign exchange risk on our future US dollar revenues using a portion of our US dollar denominated secured term loan facility and senior secured notes as the hedging instrument. We incurred foreign exchange losses in our statement of profit or loss on our unhedged US dollar denominated secured term loan facility and senior secured notes of £58.7 million in the year ended 30 June 2022, as well as £4.4 million in the year ended 30 June 2020. In the year ended 30 June 2021, we recorded a gain of £48.0 million. For the years ended 30 June 2022, 2021 and 2020 approximately 11.6%, 15.0% and 3.3% of our total revenue was generated in Euros, respectively, and approximately 13.7%, 9.0% and 22.9% of our total revenue was generated in US dollars, respectively. We may also enter into foreign exchange contracts to hedge a portion of this transactional exposure. We offset the value of our non-sterling revenue and the value of the corresponding hedge before including such amounts in our overall revenue. Our results of operations have in the past and will in the future fluctuate due to movements in exchange rates and the impact of the COVID-19 pandemic may result in further volatility.
Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure our brand.
Like other popular brands, we are susceptible to instances of brand infringement (such as counterfeiting and other unauthorized uses of our intellectual property rights). We seek to protect our brand assets by ensuring that we own and control certain intellectual property rights in and to those assets and, where appropriate, by enforcing those intellectual property rights. For example, we own the copyright in our logo, and our logo and trade name are registered as trademarks (or are the subject of applications for registration) in a number of jurisdictions in Europe, Asia Pacific, Africa, North America and South America. However, it is not possible to detect all instances of brand infringement. Additionally, where instances of brand infringement are detected, we cannot guarantee that such instances will be prevented as there may be legal or factual circumstances which give rise to uncertainty as to the validity, scope and enforceability of our intellectual property rights in the brand assets. Furthermore, the laws of certain countries in which we license our brand and conduct operations, particularly those in Asia may not offer the same level of protection to intellectual property rights holders as those in the United Kingdom, the rest of Europe and the United States, or the time required to enforce our intellectual property rights under these legal regimes may be lengthy and delay recovery. For example, the unauthorized use of intellectual property is common and widespread in Asia and enforcement of intellectual property rights by local regulatory agencies is inconsistent. If we were to fail or be unable to secure, protect, maintain and/or enforce the intellectual property rights which vest in our brand assets, then we could lose our exclusive right to exploit such brand assets. Infringement of our trademark, copyright and other intellectual property rights could have an adverse effect on our business. We also license our intellectual property rights to third parties. In an effort to protect our brand, we enter into licensing agreements with these third parties which govern the use of our intellectual property and which require our licensees to abide by quality control standards with respect to such use. We cannot assure you that our efforts to police our licensees’ use of our intellectual property will be sufficient to ensure their compliance. The failure of our licensees to comply with the terms of their licenses could have a material adverse effect on our business, results of operations, financial condition and cash flow.
We are subject to governmental regulation and other legal obligations related to privacy, data protection, data security and safeguarding. Our actual or perceived failure to comply with such obligations could harm our business.
We are subject to diverse laws and regulations relating to data privacy and security, including the United Kingdom data protection regime consisting primarily of the UK General Data Protection Regulation and the UK Data Protection Act 2018 and, in the EEA, Regulation 2016/679, known as the EEA General Data Protection Regulation. In key jurisdictions where we operate, including China, Singapore and Thailand, new global privacy rules are being enacted and existing ones are being updated and strengthened. We are likely to be required to expend significant capital and other resources to ensure ongoing compliance with these laws and regulations.
Claims that we have violated individuals’ privacy rights or breached our data protection obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.
We collect and process personal data from our followers, customers, members, suppliers, business contacts and employees as part of the operation of our business (including online merchandising), and therefore we must comply with data protection and privacy laws in the United Kingdom and, in certain situations, other jurisdictions where we operate or where our followers reside. The United Kingdom’s data protection regime imposes stringent operational requirements for controllers of personal data, including, for example, higher standards for obtaining consent from individuals to process their personal data (including, in certain circumstances for marketing and other follower engagement), more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention of information, additional obligations when we contract third-party processors in connection with the processing of personal data, and certain restrictions when transferring personal data outside of the UK. The EEA General Data Protection Regulation imposes similarly onerous obligations for our operations in the EEA. In addition, we are exposed to the risk that the personal data we control could be wrongfully accessed and/or used, whether by employees, followers or other third parties, or otherwise lost or disclosed or processed in breach of data protection regulations. If we or any of the third-party service providers on which we rely fail to process such personal data in a lawful or secure manner or if any theft or loss of personal data were to occur, we could face liability under data protection laws, and we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to £17.5 million (in the UK)/20 million Euros (in the EU) or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher. In addition to statutory enforcement and other administrative penalties, a personal data breach can lead to compensation claims by affected individuals, negative publicity and a potential loss of business.
In recent years, US and European lawmakers and regulators have expressed concern over electronic marketing and the use of third-party cookies, web beacons and similar technology for online behavioral advertising. In the United Kingdom, marketing is defined broadly to include any promotional material and the rules specifically on electronic marketing are currently set out in the ePrivacy Directive (which is implemented in the United Kingdom by the Privacy and Electronic Communications Regulations; this remains in force following the United Kingdom’s departure from the European Union), which requires informed consent for the placement of a cookie or similar technologies on a user’s device and for certain direct electronic marketing. The regime also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology, and non-compliance with marketing and cookies laws could lead to litigation, regulatory investigations, enforcement notices or monetary penalties. Further regulation or more stringent enforcement of cookies and similar technologies, and any decline of cookies or similar online tracking technologies as a means to identify and potentially target users, may lead to broader restrictions on our online activities, including efforts to understand followers’ internet usage and promote ourselves to them.
We are also subject to legislation associated with child protection, adult protection, safeguarding and the rights of children. We aim to operate in compliance with the guiding principles of the United Nations Convention on the Rights of the Child (“UNCRC”) which sets out the civil, political, economic, social and cultural rights of every child, regardless of their race, religion or abilities.
Both in the United Kingdom and internationally there have been increases in disclosures of institutional sexual abuse, most notably by the Football Association (England), US Gymnastics (USA) and Oxfam (Haiti/ United Kingdom), where the outcome has been significant fines, reductions in funding and sponsorship, and substantial media reputational damage along with a lack of trust in those organizations. We are required to demonstrate to government and regulatory bodies our processes and systems to demonstrate what proactive steps we take to ensure the safety and well-being of children and adults at risk in our duty of care, as well as managing any civil liability or other claims by individuals against historical abuse disclosures.
We collect, process and retain personal data associated with safeguarding cases and criminal records in order to take steps to safeguard children and adults at risk, and create a safer culture for them to thrive and for staff/volunteers to work within, in accordance with legal and regulatory requirements. Safeguarding legislation is in flux with the key focus that the welfare of the child and/or adult at risk is paramount. Failure to maintain compliance with these changes could harm our business.
Piracy and illegal live streaming may adversely impact our Broadcasting revenue.
For each of the years ended 30 June 2022, 2021 and 2020, Broadcasting revenue constituted 36.8%, 51.6% and 27.6%, respectively, of our total revenue. Our Broadcasting revenue is principally generated by the broadcasting of our matches on pay and free-to-air television channels as well as content delivered over the internet and through our own television channel, MUTV. In recent years, piracy and illegal live streaming of subscription content over the internet has caused, and is continuing to cause, lost revenue to media distributors showing our matches. For example, the Premier League previously initiated litigation against Google and YouTube for facilitating piracy and illegal streaming of subscription content. While this litigation matter has been settled there can be no guarantee that this or similar actions will prevent or limit future piracy or illegal streaming of subscription content. If these trends increase or continue unabated, they could pose a risk to subscription television services. The result could be a reduction in the value of our share of football broadcasting rights and of our online and MUTV services, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
Changes in consumer viewing habits and the emergence of new content distribution platforms could adversely affect our business.
The manner in which consumers view televised sporting events is changing rapidly with the emergence of alternative distribution platforms. Digital cable, internet and wireless content providers are continuing to improve technologies, content offerings, user interface, and business models that allow consumers to access video-on-demand or internet-based tools with interactive capabilities including start, stop and rewind. Such developments may impact the profitability or effectiveness of our existing media contracts and strategy, including our television channel, MUTV. If we are unsuccessful in adapting our licensing practices and/or media platforms as consumer viewing habits change, our viewership levels (whether on traditional or new platforms), our Broadcasting revenue and/or the value of our advertising and sponsorship contracts may decrease, which could have a material adverse effect our business, results of operations and financial condition.
In addition, even if we are able to successfully adapt, we will be subject to risks associated with these alternative distribution platforms. Delivery of video programming over the internet is done through a series of carriers, and any point of failure in this distribution chain may disrupt or degrade the quality of our services. Service disruption or degradation for any reason, including as a result of a cyber-attack, natural disaster or other failure in our or a third-party’s IT systems, could diminish the overall attractiveness of our services to subscribers, causing us to lose subscribers and/or credit subscribers affected by such disruption, which could have a material adverse effect on our business, results of operations and financial condition.
Our operating results may fluctuate due to seasonality.
Our operating results are subject to seasonal variation, limiting the overall comparability and predictability of interim financial periods. The seasonality of our operating results is primarily attributable to the number of games played in each financial period and therefore Matchday and Broadcasting revenue recognized. Similarly, certain of our costs derive from hosting games at Old Trafford, and these costs will also vary based on the number of games played in the period. We have historically generated higher revenue in the second and third quarters of our fiscal year. Our business might be affected by our men’s first team reaching the later stages of European and domestic competitions, which would generally generate significant additional Broadcasting and Matchday revenue during the fourth quarter of our fiscal years. Our cash flow may also vary among interim periods due to the timing of significant payments from major commercial and player transfer agreements. The seasonality we have experienced in our business, as described above, has been, and may continue to be, further exaggerated by the COVID-19 pandemic. As a result, our interim results and any quarterly financial information that we publish should not be viewed as an indicator of our performance for the fiscal year.
We are subject to tax in multiple jurisdictions, and changes in tax laws (or in the interpretations thereof) in the United States, United Kingdom or in other jurisdictions could have an adverse effect on us.
Although we are incorporated as a Cayman Islands exempted company, we report as a US domestic corporation for US federal income tax purposes and we are subject to US federal corporate income tax (currently at a statutory rate of 21%) on our worldwide income. As the majority of the Group is UK tax resident, then we are also subject to UK corporation tax (currently at a statutory rate of 19% but due to increase to 25% from April 2023). We expect to utilize a credit in the United States for UK taxes paid and therefore we do not expect to be double taxed on our income.
In addition, we are subject to income and other taxes in various other jurisdictions. The amount of tax we pay is subject to our interpretation and application of tax laws in jurisdictions in which we operate. Changes in current or future laws or regulations, or the imposition of new or changed tax laws or regulations or new related interpretations by taxing authorities in the US, UK or foreign jurisdictions, could adversely affect our business, results of operations, financial condition and cash flow. For example, on August 16, 2022, President Biden signed into law the Inflation Reduction Act, which introduced a corporate minimum tax that would be imposed on certain corporations at a 15% rate and an excise tax of 1% that would, in some cases, be imposed on stock buybacks and stock redemptions by corporations. These changes could impact our tax liabilities and the recognition of the US deferred tax asset in the future, among other impacts. The Internal Revenue Service or other authorities may also issue regulations or other guidance in the future that could modify how these taxes or other provisions of the Inflation Reduction Act will be applied. In addition, other changes to the US federal tax law have also been proposed from time to time; however, it is not yet clear if or what additional changes will be made or when, or what impact any such changes will have on us.
We establish tax provisions, where appropriate, on the basis of amounts expected to be paid to (and recovered from) tax authorities and, as a result, changes in tax laws (or in the interpretations thereof) could have an adverse effect on us.
Tax is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where we operate and generate taxable income. We establish provisions where appropriate on the basis of amounts expected to be paid to (or recovered from) the tax authorities. From time to time we are involved in discussions with tax authorities in relation to ongoing tax matters and, where appropriate, provisions are made based on our assessment of each case. We are currently in active discussions with UK tax authorities over a number of tax areas in relation to arrangements with players and players’ representatives. It is possible that in the future, as a result of these discussions, as well as discussions that UK tax authorities are holding with other stakeholders within the football industry, interpretations of applicable rules will be challenged, which could result in liabilities in relation to these matters. The future income tax expense or credit may be higher or lower than estimates made when we determined whether it was appropriate to record a provision and the amount to be recorded. Furthermore, changes in the legislative framework or applicable tax case law (or in the interpretation thereof) could adversely affect our business, results of operations, financial condition and cash flow.
Business interruptions due to natural disasters, terrorist incidents and other events, such as the COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease, could adversely affect us and Old Trafford.
Our operations can be subject to natural disasters, terrorist incidents and other events beyond our control, such as earthquakes, fires, power failures, telecommunication losses, acts of war and pandemics, epidemics or any other outbreak of an infectious disease, including fluctuations in the severity and duration of the COVID-19 pandemic and any resulting restrictions on business activity and operations, which may vary significantly by country and/or region. Such events, whether natural or manmade, could cause severe destruction or interruption to our operations, and as a result, our business could suffer serious harm. Our men’s first team regularly tours the world for promotional matches, visiting various countries with a history of terrorism and civil unrest, and as a result, we and our players could be potential targets of terrorism when visiting such countries. In addition, any prolonged business interruption at Old Trafford could cause a decline in Matchday revenue. See “—The COVID-19 pandemic has had, and may continue to have, a material impact on our business, results of operations, financial position and cash flows.” Our business interruption insurance only covers some, but not all, of these potential events, and even for those events that are covered, it may not be sufficient to compensate us fully for losses or damages that may occur as a result of such events, including, for example, loss of market share and diminution of our brand, reputation and client loyalty. Any one or more of these events could have a material adverse effect on our business, results of operation, financial condition and cash flow.
We are subject to risks relating to weather and climate change.
Extreme weather conditions may cause property damage or interrupt our matchday operations both at Old Trafford and at other away match locations, which could harm our business and results of operations. Climate change may affect the frequency or severity of these conditions. Our property and business interruption insurance coverage for certain conditions is subject to deductibles and limits on maximum benefits, including limitation on the coverage period for business interruption, and we cannot assure you that we will be able to fully insure such losses or fully collect, if at all, on claims resulting from such conditions.
If we fail to properly manage our anticipated growth, our business could suffer.
The planned growth of our commercial operations may place a significant strain on our management and on our operational and financial resources and systems. To manage growth effectively, we will need to maintain a system of management controls and attract and retain qualified personnel, as well as, develop, train and manage management-level and other employees. Failure to manage our growth effectively could cause us to over-invest or under-invest in infrastructure, and result in losses or weaknesses in our infrastructure, which could have a material adverse effect on our business, results of operations, financial condition and cash flow. Any failure by us to manage our growth effectively could have a negative effect on our ability to achieve our development and commercialization goals and strategies.
Non-compliance with health and safety legislation could lead to physical harm.
The safety, health, and well-being of all our employees and customers is fundamental to delivering sustainable and positive economic performance. We are obligated to comply with various rules and conditions imposed by government and regulatory bodies, including but not limited to those set out by the Sports Ground Safety Authority (SGSA), ISO 45001: 2018 certification (Health & Safety Management Standard), fire safety measures and our requirement to maintain compliance with COVID-19 protocols on both matchday and non-matchday. Any incident involving non-compliance with respect to health and safety could potentially not only affect staff but also others at the stadium including contractors, fans and visitors. Depending on the severity of the non-compliance and the impact on those affected parties, this could lead to possible accident or injury claims, fines, damage to the brand and reputation and prosecution, any of which could materially and adversely affect our business, results of operations, financial condition and cash flow. In an effort to mitigate these risks, we have dedicated significant resources to establishing health and safety operational policies and procedures, ongoing employee training protocols, and both monthly/annual compliance and affirmation reporting obligations. Incidents involving non-compliance may still occur despite our efforts, and it is possible that these and any similar actions we may take in the future to mitigate these risks may divert resources away from our revenue-generating activities without yielding a corresponding benefit.
Risks Related to Our Industry
An economic downturn or other adverse economic conditions may harm our business.
Economic downturns and other adverse conditions in the United Kingdom and markets globally, including the current economic downturn and adverse conditions caused by the COVID-19 pandemic and other economic pressures, have negatively affected, and any further downturns or other adverse conditions that occur in the future may also negatively affect, our operations. Our Matchday and Broadcasting revenue in part depend on personal disposable income and corporate marketing and hospitality budgets. Further, our Commercial revenue is contingent upon the expenditures of businesses across a wide range of industries. Any economic downturn or other deterioration in economic conditions, such as inflation, slower growth, unemployment levels, credit availability, fuel prices, interest rates, tax rates, trade relations and regulations, or other factors, whether resulting from geopolitical issues and uncertainty, the impact of pandemics, epidemics or other outbreaks of infectious disease, or any number of other conditions or events outside of our control, are likely to have a negative impact on consumer and corporate discretionary spending and otherwise lead companies in affected industries to cut costs in response to these changed circumstances. As a result, any economic downturn or other weakening in economic conditions could cause a reduction in our Commercial revenue, as well as our Broadcasting and Matchday revenue, each of which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
The departure of the United Kingdom from the European Union may adversely affect our operations and financial results.
The United Kingdom formally withdrew from the EU on 31 January 2020 and entered into a transition period which ended on 31 December 2020. While a number of significant agreements were ratified during the transitional period or shortly thereafter, there remains a degree of political and economic uncertainty regarding whether the terms of these new relationships will differ materially from the terms prior to withdrawal.
These developments may continue to impact the economic outlook of the EU and the United Kingdom, and associated global implications remain uncertain. Lack of clarity about future UK laws and regulations could decrease foreign direct investment in the United Kingdom, increase costs, depress economic activity and restrict our access to capital and could have a material adverse effect on our business, results of operations, financial condition, cash flow and the price of our Class A ordinary shares.
Furthermore, following the departure of the United Kingdom from the EU, there are greater restrictions on the movement of players (and football technical staff including Head Coaches) between the United Kingdom and EU member states, and other increased regulatory complexities. Any EU resident player or technical staff that the club is seeking to employ must now be granted a Governing Body Endorsement (“GBE”) from The Football Association. The FA will grant a GBE automatically if certain “auto-pass” criteria are met which for players is based on their record of senior international appearances, typically reviewed over a 2-year period and the auto-pass thresholds being determined by the FIFA ranking of the player’s national association. If the player does not meet the auto-pass threshold, a points system based on a number of football-related criteria (in addition to senior international appearances) is used to determine whether a GBE will be granted.
In addition to EU resident football players now requiring a GBE (similar to other workers not entitled to work in the UK), the departure of the United Kingdom means we are no longer able to rely on the exemption that permits the transfer of players between the ages of 16 and 18 within the territory of the EU or the EEA (subject to the satisfaction of certain conditions) as an exception to the FIFA rules which prohibit the international transfer of players under the age of 18 (subject to certain limited exceptions).
An increase in the relative size of salaries or transfer costs could adversely affect our business.
Our success depends on our ability to attract and retain the highest quality players and coaching staff. As a result, we are obliged to pay salaries generally comparable to our main competitors in England and Europe. Any increase in salaries may adversely affect our business, results of operations, financial condition and cash flow.
Other factors that affect player salaries, such as changes in personal tax rates, changes to the treatment of income or other changes to taxation in the United Kingdom and the relative strength of pounds sterling, may make it more difficult to attract top players and coaching staff from Europe or elsewhere or require us to pay higher salaries to compensate for higher taxes or less favorable exchange rates. In addition, if our revenue falls and salaries remain stable (for example, as a result of fixed player or coaching staff salaries over a long period) or increase, our results of operations would be materially adversely affected.
An increase in transfer fees would require us to pay more than expected for the acquisition of players’ registrations in the future. In addition, certain players’ transfer values may diminish after we acquire them, and we may sell those players for transfer fees below their net book value, resulting in a loss on disposal of players’ registrations. Net transfer costs could also increase if levies imposed by FIFA, the Premier League or any other organization in respect of the transfer of players’ registrations were to increase.
We remain committed to attracting and retaining the highest quality players and key football management staff for our men’s first team. Our average annual net registrations cash outflow over the last five years has been £120.4 million and we continue to expect it to vary significantly from period to period. We may explore new player acquisitions in connection with future transfer periods that may materially increase the amount of our net capital expenditure on intangible assets. As part of any material increase in net capital expenditure on intangible assets, we may also experience a material increase in our expenditure for player salaries. The actual amount of cash we use on player acquisitions will also depend, in part, on the amount of any cash we receive as a result of the sale of any players. Any increase in net capital expenditure on intangible assets compared to historic levels will also result in an increase in amortization expenses in future periods.
UEFA, Premier League and FIFA regulations could negatively affect our business.
As the primary governing body of European football, UEFA continually evaluates the dynamics in the football industry and considers changes to the regulatory framework governing European football clubs. Clubs participating in UEFA club competitions are subject to the UEFA Club Licensing and Sustainability regulations. Breaches in the rules may result in, among other things, withholding of prize money, bans on registering new players for UEFA club competitions and ultimately disqualification from UEFA club competitions. Amongst other things, these rules are intended to discourage clubs from continually operating at a loss and to ensure that clubs settle their football, staff and tax creditors on time. Participating clubs were previously subject to Financial Fair Play (“FFP”) regulations where relevant costs (which includes all wage costs and the amortization of player capital expenditures, but excludes depreciation of tangible fixed assets, youth development, women’s team and community expenditure) exceed revenues on a cumulative basis over a three-year period, or serious delays in settling creditors. Breaches have resulted in clubs being punished by way of significant fines and even exclusion from UEFA club competitions. The rules have been amended, effective from 1 July 2022, to include a squad cost rule, with the existing “break-even” rule remaining in place. The new regulations will see clubs subject to squad cost controls for the first time. The cost control rule restricts spending on player and coach wages, transfers, and agent fees to 70% of club revenues. Revenue includes operating revenue and an average of the previous 36 months of player trading result. The gradual implementation will see the percentage at 90% in 2023/24, 80% in 2024/25, and 70% from 2025/26 onwards.
The Premier League also operates under regulations that aim to promote sustainability through profitability. The Premier League Profitability and Sustainability Rules contain a break-even test, similar to that in UEFA’s regulations. Our most recent submission was based on the fiscal years ended 30 June 2021 and 2020 and provided a positive result. Wide-ranging sanctions, including significant fines, player transfer restrictions and Premier League points deduction, may be imposed by the Premier League for a breach of these regulations.
There is a risk that application of the UEFA Financial Sustainability regulations and Premier League Profitability and Sustainability Rules could have a material adverse effect on the performance of our men’s first team and our business, results of operations, financial condition and cash flow.
The club is also bound by FIFA and Premier League regulations in respect of the status and transfer of players’ registrations across all age groups internationally and domestically. Sanctions for significant non-compliance or breaches could include restrictions on incoming player transfers and monetary fines, which could have a material adverse effect on the performance of our men’s first team and our business, results of operations, financial condition and cash flow.
We could be negatively affected by current and future Premier League, FA, UEFA, FIFA or other regulations.
Future changes to the Premier League, FA, UEFA, FIFA or other regulations may adversely affect our results of operations. These regulations could cover various aspects of our business, such as the format of competitions, the eligibility of players, the operation of the transfer market and the distribution of Broadcasting revenue. FIFA is currently going through a process of reforming the regulations which govern the transfer of player registrations, including: (a) how clubs involved in the training of a professional player are compensated for their contribution to the development of that player when that player’s registration is transferred from one club to another; (b) the transfer of players on a temporary basis (so-called player loans); and (c) the activities and remuneration of intermediaries (so-called football agents) with respect to player transfers. It is possible that this regulatory reform will impact our ability to acquire players and/or increase our costs with respect to the recruitment and retention of players. In addition, changes are being considered to address the financial sustainability of clubs such as more robust ownership rules and tests in relation to board directors and significant shareholders. In particular, changes to football regulations designed to promote competition could have a significant impact on our business. Such changes could include changes to the distribution of broadcasting income and changes to the relegation structure of English football. In addition, rules designed to promote the development of local players, such as the Home-Grown Player Rule, which requires each Premier League club to include at least eight “home grown” (i.e., players that have been registered for at least three seasons at an English or Welsh club between the ages of 16 and 21) players in their squads, could limit our ability to select players. Any of these changes could make it more difficult for us to acquire top quality players and, therefore, adversely affect the performance of our men’s first team.
Changes in the format of the league and cup competitions in which our men’s first team plays, or might in the future play, could have a negative impact on our results of operations. In addition, in the event that new competitions are introduced to replace existing competitions (for example, a European league), our results of operations may be negatively affected.
Changes in the wider regulatory framework for English football could impact our business, following the Fan-led Review of Football Governance initiated by the UK Government in April 2021. Preliminary findings from the Review were published in July 2021 and included a recommendation for the creation of an Independent Regulator for English Football, established by legislation, to take over some responsibilities currently held by the FA. It was proposed that such a body would likely oversee matters, including financial regulation, corporate governance and ownership. In April 2022, the UK Government indicated their intention to introduce an independent regulator and consultations on this matter are ongoing.
While the Club has positively engaged with the Review and supports many of its objectives, the creation of an Independent Regulator could result in new restrictions and requirements for our business. These could include cost controls, minimum governance standards and revised tests for owners and directors.
There could be a decline in our popularity or the popularity of football.
There can be no assurance that football will retain its popularity as a sport around the world and its status in the United Kingdom as the so-called “national game,” together with the associated levels of media coverage. In addition, we could suffer a decline in popularity. Any decline in popularity could result in lower ticket sales, Broadcasting revenue, sponsorship revenue, a reduction in the value of our players or our brand, or a decline in the value of our securities, including our Class A ordinary shares. Any one of these events or a combination of such events could have a material adverse effect on our business, results of operations, financial condition and cash flow.
Risk Related to Our Indebtedness
Our indebtedness could adversely affect our financial health and competitive position.
As of 30 June 2022, we had total indebtedness of £636.1 million. Our indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. It could also have effects on our business. For example, it could:
|●||limit our ability to pay dividends;|
|●||increase our vulnerability to general adverse economic and industry conditions;|
|●||require us to dedicate a material portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund the hiring and retention of players and coaching staff, working capital, capital expenditures and other general corporate purposes;|
|●||limit our flexibility in planning for, or reacting to, changes in our business and the football industry;|
|●||affect our ability to compete for players and coaching staff; and|
|●||limit our ability to borrow additional funds.|
In addition, our revolving facilities, our secured term loan facility and the note purchase agreement governing the senior secured notes contain, and any agreements evidencing or governing other future indebtedness may contain, certain restrictive covenants that will limit our ability to engage in certain activities that are in our long-term best interests. See “— Our indebtedness may restrict our ability to pursue our business strategies.” We have not previously breached and are not in breach of any of the covenants under any of these facilities; however our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness.
To service our indebtedness, we require cash, and our ability to generate cash is subject to many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to the performance and popularity of our men’s first team as well as general economic, financial, competitive, regulatory and other factors that are beyond our control, including the COVID-19 pandemic and any other pandemic, epidemic or outbreak of an infectious disease.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. Failure to refinance our indebtedness on terms we believe to be acceptable could have a material adverse effect on our business, financial condition, results of operations and cash flow.
Our indebtedness may restrict our ability to pursue our business strategies.
Our revolving facilities, our secured term loan facility and the note purchase agreement governing the senior secured notes limit our ability, among other things, to:
|●||incur additional indebtedness;|
|●||pay dividends or make other distributions or repurchase or redeem our shares;|
|●||sell assets, including capital stock of restricted subsidiaries;|
|●||enter into agreements restricting our subsidiaries’ ability to pay dividends;|
|●||consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;|
|●||enter into sale and leaseback transactions;|
|●||enter into transactions with our affiliates; and|
Our ability to comply with these covenants and restrictions may be affected by events beyond our control. If we breach any of these covenants or restrictions, we could be in default under our revolving facilities, our secured term loan facility and the note purchase agreement governing the senior secured notes. This would permit the lending banks under our revolving facilities and our secured term loan facility to take certain actions, including declaring all amounts that we have borrowed under our revolving facilities, secured term loan facility and other indebtedness to be due and payable, together with accrued and unpaid interest. This would also result in an event of default under the note purchase agreement governing the senior secured notes. Furthermore, lending banks could refuse to extend further credit under the revolving facilities. If the debt under our revolving facilities, our secured term loan facility, the note purchase agreement governing the senior secured notes or any other material financing arrangement that we enter into were to be accelerated, our assets, in particular liquid assets, may be insufficient to repay our indebtedness. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly, as well as risks related to the phasing out of LIBOR.
We are subject to interest rate risk in connection with borrowings under our revolving facilities and our secured term loan facility, which bear interest at variable rates. Interest rate changes could impact the amount of our interest payments, and accordingly, our future earnings and cash flow, assuming other factors are held constant. We have entered into an interest rate swap related to a portion of our secured term loan facility that involves the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. As of 30 June 2022, we had £185.2 million of variable rate indebtedness outstanding under our secured term loan facility and £100.0 million of variable rate indebtedness outstanding under our revolving facilities. We cannot assure you that any hedging activities entered into by us will be effective in fully mitigating our interest rate risk from our variable rate indebtedness.
In addition, the interest rate benchmarks that we are subject to may change as a result of regulatory guidance and/or reform. From 1 January 2022, the GBP London Inter-bank Offered Rate (“LIBOR”) in addition to 1-week and 2-month USD LIBOR rates were replaced by SONIA (Sterling Overnight Average Index) and the Secured Overnight Financing Rate (“SOFR”) respectively and all other USD LIBOR rates will cease immediately after 30 June 2023. While the agreements governing our revolving facilities have been amended to replace LIBOR with SONIA and SOFR based rates as applicable and the secured term loan facility provides for an alternate method of calculating our interest rates in the event that a LIBOR rate is unavailable, when all remaining LIBOR rates cease to exist or when the methods of calculating LIBOR change from their current form, there may be adverse impacts on the financial markets generally and interest rates on borrowings under our revolving facilities and secured term loan facility may be materially adversely affected.
Risks Related to Ownership of Our Class A Ordinary Shares
Because of their increased voting rights, the holders of our Class B shares will be able to exert control over us and our significant corporate decisions.
Trusts and other entities controlled by six lineal descendants of Mr. Malcolm Glazer collectively own 4.37% of our issued and outstanding Class A ordinary shares and all of our issued and outstanding Class B ordinary shares, representing 95.62% of the voting power of our outstanding capital stock. See “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders.” Each Class A ordinary share is entitled to one vote per share and is not convertible into any other class of shares. Each Class B ordinary share is entitled to 10 votes per share and is convertible into one Class A ordinary share at any time. In addition, our Class B ordinary shares will automatically convert into Class A ordinary shares upon certain transfers and other events, including upon the date when holders of all Class B ordinary shares cease to hold Class B ordinary shares representing at least 10% of the total number of Class A and Class B ordinary shares outstanding. For special resolutions, which require the vote of two-thirds of the votes cast, at any time that Class B ordinary shares remain outstanding, the voting power permitted to be exercised by the holders of the Class B ordinary shares will be weighted such that the Class B ordinary shares shall represent, in the aggregate, 67% of the voting power of all shareholders. As a result, the holders of our Class B shares will be able to exert a significant degree of influence or actual control over our management and affairs and control all matters submitted to our shareholders for approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets. The interests of the holders of our Class B shares might not coincide with the interests of the other shareholders. This concentration of voting power in our Class B shares may harm the value of our Class A ordinary shares, among other things:
|●||delaying, deferring or preventing a change in control of our Company;|
|●||impeding a merger, consolidation, takeover or other business combination involving our Company; or|
|●||causing us to enter into transactions or agreements that are not in the best interests of all shareholders.|
As a foreign private issuer within the meaning of the New York Stock Exchange’s corporate governance rules, we are permitted to, and we do, rely on exemptions from certain of the New York Stock Exchange corporate governance standards and shareholder approval requirements. Our reliance on such exemptions may afford less protection to holders of our Class A ordinary shares.
The New York Stock Exchange’s corporate governance rules require listed companies to have, among other things, a majority of independent board members and independent director oversight of executive compensation, nomination of directors and corporate governance matters. Additionally, the New York Stock Exchange’s rules require that a listed company obtain, in specified circumstances, (1) shareholder approval to adopt and materially revise equity compensation plans, as well as (2) shareholder approval prior to an issuance (a) of more than 1% of its common stock (including derivative securities thereof) in either number or voting power to related parties, (b) of more than 20% of its outstanding common stock (including derivative securities thereof) in either number or voting power or (c) that would result in a change of control. As a foreign private issuer, we are permitted to, and we do, follow home country practice in lieu of the foregoing requirements. As long as we rely on the foreign private issuer exemptions under the rules of the New York Stock Exchange, a majority of the directors on our board of directors are not required to be independent directors, our remuneration committee is not required to be comprised entirely of independent directors, we are not required to have a nominating and corporate governance committee, and shareholder approval is neither required for equity compensation plans and material revisions to those plans nor the issuance of more than 1% of our outstanding ordinary shares (including derivative securities thereof) in either number or voting power, the issuance of 20% or more of our outstanding ordinary shares (including derivative securities thereof) in either number or voting power or an issuance that would result in a change of control. Therefore, our board of directors’ approach to governance and securities issuances may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, the management oversight of our Company may be more limited than if we were subject to all of the New York Stock Exchange corporate governance standards and shareholder approval requirements.
Accordingly, our shareholders do not have the same protection afforded to shareholders of companies that are subject to all of the New York Stock Exchange corporate governance standards and shareholder approval requirements, and the ability of our independent directors to influence our business policies and affairs may be reduced.
The obligations associated with being a public company require significant resources and management attention.
As a public company in the United States, we incur legal, accounting and other expenses that we did not previously incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the listing requirements of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increases demand on our systems and resources. The Exchange Act requires that we file annual and current reports with respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal control over financial reporting and requires our independent registered public accounting firm to attest to the effectiveness of such internal control. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our internal controls or the level at which such controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to generate revenue, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price.
Furthermore, the demands of being a public company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to continue to meet our reporting obligations as a public company. However, the measures we have taken, and will continue to take, may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business, financial condition, results of operations and cash flow could be adversely affected.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on 31 December 2022.
In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are US citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain US regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under US securities laws as a US domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on US domestic issuer forms with the US Securities and Exchange Commission (the “SEC”), which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the annual report on Form 20-F permits foreign private issuers to disclose compensation information on an
aggregate basis. We will also have to mandatorily comply with US federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with US domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on US stock exchanges that are available to foreign private issuers.
Anti-takeover provisions in our organizational documents and Cayman Islands law may discourage or prevent a change of control, even if an acquisition would be beneficial to our shareholders, which could depress the price of our Class A ordinary shares and prevent attempts by our shareholders to replace or remove our current management.
Our amended and restated memorandum and articles of association contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. In particular, our amended and restated memorandum and articles of association permit our board of directors to issue preference shares from time to time, with such rights and preferences as they consider appropriate. Our board of directors could also authorize the issuance of preference shares with terms and conditions and under circumstances that could have an effect of discouraging a takeover or other transaction. We are also subject to certain provisions under Cayman Islands law which could delay or prevent a change of control. In particular, any merger, consolidation or amalgamation of the Company would require the active consent of our board of directors. Our board of directors may be appointed or removed by the holders of the majority of the voting power of our ordinary shares (which is controlled by the holders of our Class B ordinary shares). Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our Class A ordinary shares.
The price of our Class A ordinary shares might fluctuate significantly, and you could lose all or part of your investment.
Volatility in the market price of our Class A ordinary shares may prevent investors from being able to sell their Class A ordinary shares at or above the price they paid for such shares. The trading price of our Class A ordinary shares may be volatile and subject to wide price fluctuations in response to various factors, including:
|●||performance of our men’s first team;|
|●||the overall performance of the equity markets;|
|●||industry related regulatory developments;|
|●||issuance of new or changed securities analysts’ reports or recommendations;|
|●||additions or departures of key personnel;|
|●||investor perceptions of us and the football industry, changes in accounting standards, policies, guidance, interpretations or principles;|
|●||sale of our Class A ordinary shares by us, our principal shareholders or members of our management;|
|●||general economic conditions, including the economic impact of the COVID-19 pandemic and any other pandemic, epidemic or outbreak of an infectious disease;|
|●||changes in interest rates; and|
|●||availability of capital.|
These and other factors might cause the market price of our Class A ordinary shares to fluctuate substantially, which might limit or prevent investors from readily selling their Class A ordinary shares and may otherwise negatively affect the liquidity of our Class A ordinary shares. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies across many industries. The changes frequently appear to occur without regard to the operating performance of the affected companies. Accordingly, the price of our Class A ordinary shares could fluctuate based upon factors that have little or nothing to do with our Company, and these fluctuations could materially reduce our share price. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources, and harm our business, operating results and financial condition.
Future sales of our Class A ordinary shares, or the perception in the public markets that these sales may occur, may depress our stock price.
Sales of substantial amounts of our Class A ordinary shares, or the perception that these sales could occur, could adversely affect the price of our Class A ordinary shares and could impair our ability to raise capital through the sale of additional shares. As of 2 September 2022 we had 54,537,360 Class A ordinary shares outstanding. The Class A ordinary shares are freely tradable without restriction under the Securities Act, except for any of our Class A ordinary shares that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
All of our Class A ordinary shares outstanding as of the date of this Annual Report may be sold in the public market by existing shareholders, subject to applicable Rule 144 volume limitations and other limitations imposed under federal securities laws.
In the future, we may also issue our securities if we need to raise capital in connection with a capital raise or acquisition. The amount of our Class A ordinary shares issued in connection with a capital raise or acquisition could constitute a material portion of our then-outstanding Class A ordinary shares.
Our ability to pay regular dividends is subject to restrictions in our revolving facilities, our secured term loan facility, the note purchase agreement governing the senior secured notes, results of operations, distributable reserves and solvency requirements; our Class A ordinary shares have no guaranteed dividends and holders of our Class A ordinary shares have no recourse if dividends are not declared.
In fiscal year 2022, we paid three cash dividends on our Class A ordinary shares and Class B ordinary shares, each of $0.09 per share. Dividends paid in the year ended 30 June 2022 amounted to $44.0 million ($0.27 per share), the pounds sterling equivalent of which was £33.6 million (£0.21 per share). The declaration and payment of any future dividends will be at the sole discretion of our board of directors or a committee thereof and will depend upon our results of operations, financial condition, distributable reserves, contractual restrictions, restrictions imposed by applicable law, capital requirements and other factors our board of directors (or such committee thereof) deems relevant. Furthermore, neither our Class A ordinary shares nor our Class B ordinary shares have any guaranteed dividends and holders of our Class A ordinary shares and holders of our Class B ordinary shares have no recourse if dividends are not declared. Our ability to pay dividends on the Class A ordinary shares and Class B ordinary shares is limited by our revolving facilities, our secured term loan facility and the note purchase agreement governing the senior secured notes, which contain restricted payment covenants. The restricted payment covenants allow dividends in certain circumstances, including to the extent dividends do not exceed 50% of the cumulative consolidated net income of Red Football Limited and its restricted subsidiaries, provided there is no event of default and Red Football Limited is able to meet the principal and interest payments on its debt under a fixed charge coverage test. Our ability to pay dividends may be further restricted by the terms of any of our future debt or preferred securities. Additionally, because we are a holding company, our ability to pay dividends on our Class A ordinary shares and Class B ordinary shares is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness. As a consequence of these limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our Class A ordinary shares. Accordingly, you may have to sell some or all of your Class A ordinary shares after price appreciation in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell your Class A ordinary shares and you may lose the entire amount of the investment. Additionally, any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our Class A ordinary shares. See “Item 8. Financial Information – A. Consolidated Financial Statements and Other Financial Information – Dividend Policy.”
The rules of the Premier League and our amended and restated memorandum and articles of association impose certain limitations on shareholders’ ability to invest in more than one football club.
The rules of the Premier League prohibit any person who holds an interest of 10% or more of the total voting rights exercisable in a Premier League or English Football League (“EFL”) football club from holding an interest in voting rights exercisable in any other Premier League football club or EFL football club. As a result, our amended and restated memorandum and articles of association prohibit the acquisition of (i) 10% or more of our Class A ordinary shares if they hold any interest in voting rights exercisable in another Premier League football club and (ii) any Class A ordinary shares if they hold an interest of 10% or more of the total voting rights exercisable in another Premier League football club. In addition, under our amended and restated memorandum and articles of association, if any shareholder is determined by us, at our absolute discretion, to be holding any Class A ordinary shares in violation of
this rule or the rules of certain other relevant governing bodies, we have the right to repurchase shares from such person or direct that shareholder to transfer those shares to another person.
Exchange rate fluctuations may adversely affect the foreign exchange value of the Class A ordinary shares and any dividends.
Our Class A ordinary shares are quoted in US dollars on the New York Stock Exchange. Our financial statements are prepared in pounds sterling. Fluctuations in the exchange rate between the pounds sterling and the US dollar will affect, among other matters, the US dollar value of the Class A ordinary shares and of any dividends.
The rights afforded to shareholders are governed by the laws of the Cayman Islands.
Our corporate affairs and the rights afforded to shareholders are governed by our amended and restated memorandum and articles of association and by the Companies Law (as amended) of the Cayman Islands (the “Companies Law”) and common law of the Cayman Islands, and these rights differ in certain respects from the rights of shareholders in typical US corporations. In particular, the laws of the Cayman Islands relating to the protection of the interests of minority shareholders differ in some respects from those established under statutes or judicial precedent in existence in the United States. The laws of the Cayman Island provide only limited circumstances under which shareholders of companies may bring derivative actions and (except in limited circumstances) do not afford appraisal rights to dissenting shareholders in the form typically available to shareholders of a US corporation other than in limited circumstances in relation to certain mergers. A summary of Cayman Islands law on the protection of minority shareholders is set out in “Item 10. Additional Information — B. Memorandum and Articles of Association and Other Share Information.”
We report as a US domestic corporation for US federal corporate income tax purposes.
As discussed more fully under “Item 10. Additional Information – E. Taxation,” due to the circumstances of our formation and the application of Section 7874 of the Code, we report as a US domestic corporation for all purposes of the Code. As a result, we are subject to US federal income tax on our worldwide income. In addition, if we pay dividends to a Non-US Holder, as defined in the discussion “Item 10. Additional Information — E. Taxation,” we will be required to withhold US federal income tax at the rate of 30%, or such lower rate as may be provided in an applicable income tax treaty. Each investor should consult its own tax adviser regarding the US federal income tax position of the Company and the tax consequences of holding the Class A ordinary shares.
Withholding under the Foreign Account Tax Compliance Act may apply to our dividends.
Under legislation incorporating provisions referred to as the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax will generally apply to certain types of payments, including US source dividends made to “foreign financial institutions” (as defined under those rules) and certain other non-US entities, unless such foreign financial institutions or other entities comply with requirements under FATCA. Because we report as a US domestic corporation for all purposes of the Code, including for purposes of FATCA, our dividends paid to a foreign financial institution or other non-US entity may be subject to potential withholding under FATCA. Under the applicable US Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our Class A ordinary shares. While withholding under FATCA would have also applied to payments of gross proceeds from the sale or other disposition of stock on or after 1 January 2019, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Class A ordinary shares depends in part on the research and reports that securities or industry analysts publish about us, our business or our industry. If one or more of the analysts who covers us downgrades our stock, our share price will likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our Class A ordinary shares could decrease, which could cause our stock price or trading volume to decline.
It may be difficult to enforce a US judgment against us, our directors and officers and certain experts named in this Annual Report outside the United States, or to assert US securities law claims outside of the United States.
The majority of our directors and executive officers are not residents of the United States, and the majority of our assets and the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for investors to effect service of process upon us within the United States or other jurisdictions, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States. Additionally, it may be difficult to assert US securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a US securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not US law, is applicable to the claim. Further, if US law is found to be applicable, the content of applicable US law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides.
In particular, investors should be aware that there is uncertainty as to whether the courts of the Cayman Islands would recognize and enforce judgments of United States courts obtained against us or our directors or management as well as against the selling shareholder predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or entertain original actions brought in the Cayman Islands courts against us or our directors or officers as well as against the selling shareholder predicated upon the securities laws of the United States or any state in the United States. As a result of the difficulty associated with enforcing a judgment against us, you may not be able to collect any damages awarded by either a US or foreign court.
ITEM 4. INFORMATION ON THE COMPANY
Our Company — Manchester United
Manchester United Ltd., an exempted company with limited liability incorporated under the Companies Law (as amended) of the Cayman Islands, was incorporated on 30 April 2012. On 8 August 2012, Manchester United Ltd. changed its legal name to Manchester United plc. The principal executive office address is Sir Matt Busby Way, Old Trafford, Manchester M16 0RA, United Kingdom.
The SEC maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov. We also make available on our website, free of charge, our annual reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is https://ir.manutd.com/. The information contained on or through our website, or any other website referred to herein, is not incorporated by reference in this Annual Report.
We are one of the most popular and successful sports teams in the world, playing one of the most popular spectator sports on Earth. Through our 144-year heritage we have won 66 trophies, including a record 20 English league titles, enabling us to develop what we believe is one of the world’s leading sports brands and a global community of 1.1 billion fans and followers. Our large, passionate community provides us with a worldwide platform to generate significant revenue from multiple sources, including sponsorship, merchandising, product licensing, broadcasting and Matchday. We attract leading global companies such as adidas, DXC, Kohler, TeamViewer and Tezos that want access and exposure to our community of followers and association with our brand.
Our global community of followers engages with us in a variety of ways:
|●||Premier League games at our home stadium, Old Trafford, played in front of a crowd, have been virtually sold out since the 1997/98 season. In the 2020/21 season, due to COVID-19 and associated government restrictions, 33 of our 34 home games were played behind closed doors. From the start of the 2021/22 season, Old Trafford stadium welcomed back fans at full capacity and all matches in the year operated at full capacity.|
|●||We undertake exhibition games and promotional tours on a global basis, enabling our worldwide followers to see our team play. These games are in addition to our competitive matches and take place during the summer months or during gaps in the football season. Over the last 6 years, we have played 28 exhibition games in Australia, China, Ireland, Norway, Singapore, Thailand, the United States and the United Kingdom. Due to COVID-19 and competition delays resulting in the deferral of a number of 2019/20 Premier League, FA Cup and Europa League matches to July and August 2020, no promotional tour was undertaken in the summer of 2020. During the summer of 2021, as a result of the COVID-19 pandemic, we did not undertake a promotional overseas tour and instead we played four domestic games, two of which were held at Old Trafford. In the|
|summer of 2022, we returned to a more normal pre-season schedule with promotional tours to Australia, Norway and Thailand.|
|●||Our customer relationship management (“CRM”) database, a proprietary data repository that includes contact and transactional details of followers and customers around the globe, enables us to analyze and better understand prospects and customers to drive revenues. As of 30 June 2022, we estimate that the CRM database holds approximately 50.0 million records.|
|●||As of 30 June 2022, we also had more than 220.8 million total social connections. Last year we reported a year-end figure as of 30 June 2021 of 176.1 million total social connections (a 25.4% increase). Total social connections include the following:|
|o||We have a very popular brand page on Facebook with approximately 75 million connections as of 30 June 2022. In comparison, the New York Yankees had just over 9 million connections and the Dallas Cowboys had approximately 8.3 million connections as of 30 June 2022.|
|o||As of 30 June 2022, our Twitter accounts had more than 36.2 million followers, an increase of 23.6% from 30 June 2021.|
|o||We have over 58.8 million followers on Instagram as of 30 June 2022, an increase of 42.7% from 30 June 2021. We continue to be the most-followed Premier League club on Instagram.|
|o||As of 30 June 2022, our YouTube channel had over 6 million subscribers, an increase of 46% from 30 June 2021.|
|o||We have developed a significant presence on TikTok, with our channel reaching 15.8 million followers following its launch in October 2020.|
|o||We also have a significant presence on Chinese social media. Ahead of the 2022/23 season, we launched on Chinese platform Xiaohongshu (also known as RED). We continue to be the most-followed football club on Sina Weibo, with over 11 million followers as of 30 June 2022.|
|●||Having launched our new ManUtd.com website in May 2018, which in August that year was followed by the launch of our first free global mobile application, focus has since turned to developing digital media opportunities in a number of key strategic areas.|
|●||Since 2013 we have wholly owned our in-house television network MUTV, ensuring that we have both a greater degree of control over the production, distribution and quality of our proprietary content and better insight into how to evolve our digital media strategy as we continue to develop and roll out carefully targeted new products and services. Distributed globally, MUTV enables our fans to watch our men’s first-team tour matches live, our Academy and selected women’s team matches live, as well as exclusively produced original productions and interviews with players and our team manager and the manager’s weekly press conference. Furthermore, the new app had been enhanced to better integrate our podcast offering to allow fans to listen to our podcasts as they are meant to be consumed.|
|●||In May 2022 we further expanded the reach of our in-house television network by incorporating MUTV into our main global application and removing the need for fans to have multiple iOS or Android apps. At the same time we brought in several new features including messaging, matchday audio streaming and providing access to our Premier League archive collection for the first time. Opening up this archive of Premier League matches has significantly enhanced our digital offering, providing fans with full access to over 1,100 games and 2,100 goals over a thirty-year period.|
|●||We have expanded the reach of MUTV, by launching a direct to consumer (‘D2C’) proposition on iOS, Android, AppleTV, Roku, Amazon Fire and Xbox. Our linear television network continues to be the most subscribed football channel in the United Kingdom.|
|●||During fiscal year 2022, according to Futures Data, our 2021/22 season games generated a cumulative audience reach of 2.9 billion viewers; thus on a per game basis our 49 games attracted an average cumulative audience reach of over 59.8 million viewers.|
|●||We have one of the strongest online global brands providing us with significant opportunities to further engage with our followers and develop our media assets and revenue streams.|
Our Business Model and Revenue Drivers
We operate and manage our business as a single reporting segment – the operation of professional sports teams. However, we review our revenue through three principal sectors – Commercial, Broadcasting and Matchday.
|●||Commercial: Within the Commercial revenue sector, we monetize our global brand via two revenue streams: sponsorship and retail, merchandising, apparel & product licensing.|
|●||Sponsorship: We monetize the value of our global brand and community of followers through marketing and sponsorship relationships with leading international and regional companies around the globe. To better leverage the strength of our brand, we have developed a segmentation sponsorship strategy. Our sponsorship revenue was £147.9|
|million, £140.2 million and £182.7 million, for each of the years ended 30 June 2022, 2021 and 2020, respectively. Revenue for the years ended 30 June 2022 and 30 June 2021 was affected by the first team’s pre-season tours being impacted by COVID-19 restrictions.|
|●||Retail, Merchandising, Apparel & Product Licensing: We market and sell sports apparel, training and leisure wear and other clothing featuring the Manchester United brand on a global basis. In addition, we also sell other licensed products, from coffee mugs to bed spreads, featuring the Manchester United brand and trademarks. These products are distributed through Manchester United branded retail centers and e-commerce platforms, as well as our partners’ wholesale distribution channels. Our retail, merchandising, apparel & product licensing revenue was £109.9 million, £92.0 million and £96.3 million for each of the years ended 30 June 2022, 2021 and 2020, respectively. Revenue for the years ended 30 June 2021 and 30 June 2020 was impacted by COVID-19 and the partial closure of the Old Trafford Megastore.|
Our Commercial revenue was £257.8 million, £232.2 million and £279.0 million for each of the years ended 30 June 2022, 2021 and 2020, respectively.
Our other two revenue sectors, Broadcasting and Matchday, ordinarily provide predictable cash flow and global media exposure that enables us to continue to invest in the success of the teams and expand our brand.
|●||Broadcasting: We benefit from the distribution of live football content directly from the revenue we receive and indirectly through increased global exposure for our commercial partners. Broadcasting revenue is derived from the global television rights relating to the Premier League, UEFA club competitions and other competitions. In addition, our wholly-owned global television channel, MUTV, delivers Manchester United programming to territories around the world. In addition to our broadcasting channel, we have also launched a MUTV D2C subscription mobile application which is available on iOS, Android, Amazon Fire, Apple TV, Roku and Xbox. Broadcasting revenue including, in some cases, prize money received by us in respect of various competitions, will vary from year to year as a result of variability in the amount of available prize money and the performance of our men’s first team in such competitions. Our Broadcasting revenue was £214.9 million, £254.8 million and £140.2 million for each of the years ended 30 June 2022, 2021 and 2020, respectively. Revenue for the year ended 30 June 2021 includes the impact of ten matches related to 2019/20 competitions played at the start of fiscal 2021 following the deferral of all competitions as a result of COVID-19.|
|●||Matchday: We believe Old Trafford is one of the world’s iconic sports venues. It seats 74,240, inclusive of accessible platforms accommodating 556 disabled supporters, and is the largest football club stadium in the United Kingdom. We have averaged over 99% of attendance capacity for our Premier League matches played in front of a crowd in each of the last 24 years. Matchday revenue will vary from year to year as a result of the number of home games played and the performance of our men’s first team in various competitions. Our Matchday revenue was £110.5 million, £7.1 million and £89.8 million for each of the years ended 30 June 2022, 2021 and 2020, respectively. COVID-19 had a significant impact on Matchday revenue for the years ended 30 June 2021 and 30 June 2020. During the year ended 30 June 2021, 33 out of 34 home matches were played behind closed doors. During the year ended 30 June 2020, all competitions were suspended in mid-March 2020 and following the resumption of play in June 2020, all matches were played behind closed doors. All matches during the year ended 30 June 2022 operated at full capacity.|
Total revenue for the years ended 30 June 2022, 2021 and 2020 was £583.2 million, £494.1 million and £509.0 million, respectively.
Our Competitive Strengths
We believe our key competitive strengths are:
One of the most successful sports teams in the world: Founded in 1878, Manchester United is one of the most successful sports teams in the world — playing one of the world’s most popular spectator sports. We have won 66 trophies in nine different leagues, competitions and cups since 1908. Our ongoing success is supported by our highly developed football infrastructure and global scouting network.
A globally recognized brand with a large, worldwide following: Our 144-year history, our success and the global popularity of our sport have enabled us to become, we believe, one of the world’s most recognizable brands. We enjoy the support of our worldwide community of 1.1 billion fans and followers. The composition of our follower base is far reaching and diverse, transcending cultures, geographies, languages and socio-demographic groups, and we believe the strength of our brand goes beyond the world of sports.
Ability to successfully monetize our brand: The popularity and quality of our globally recognized brand make us an attractive marketing partner for companies around the world. Our community of followers is strong in more emerging markets which enables us to deliver media exposure and growth to our partners in these markets.
Well established marketing infrastructure driving Commercial revenue growth: We have a large global team dedicated to the development and monetization of our brand and to the sourcing of new revenue opportunities. The team has considerable experience and expertise in sponsorship sales, customer relationship management, marketing execution, advertising support and brand development. In addition, we have developed an increasing range of case studies, covering multiple sponsorship categories and geographies, which in combination with our many years’ experience enables us to demonstrate and deliver an effective set of marketing capabilities to our partners on a global and regional basis. Our team is dedicated to the development and monetization of our brand and to the sourcing of new revenue opportunities.
Sought-after content capitalizing on the proliferation of digital and social media: We produce content that is followed year-round by our global community of fans and followers. Our content distribution channels are international and diverse, and we actively adopt new media channels to enhance the accessibility and reach of our content. We believe our ability to generate proprietary and exclusive content, which we distribute on our own global platforms as well as via popular third-party social media platforms such as Facebook, Instagram, Twitter, YouTube, TikTok, Sina Weibo and others, constitute an ongoing growth opportunity. We continue to grow our dominant presence on social media. Over the 2021/22 season, we generated over 2.8 billion interactions (an increase of 72% compared to the previous season), gained 42.8 million net new followers (an increase of 24% compared to the previous season) and drew 7.3 billion video views (an increase of 145% compared to previous season). We are the most-followed Premier League club on all major social media platforms. Following the successful D2C launch of MUTV on iOS, Android, and MUTV.com, and building on the global success of its linear distribution, in July 2018 we launched MUTV applications on ‘connected TV’ platforms – namely, AppleTV, Roku, Amazon Fire and Xbox. This gives our fans the ability to watch MUTV without a cable subscription. Existing subscribers to the MUTV mobile application and web platforms can access these new platforms for free via a universal login feature which allows the same credentials to be used across several devices. This continued expansion provides MUTV access to a new demographic of the club’s fan base. Recent figures show that connected TV usage is highest amongst young Millennials (born 1980 - 1995) and Generation Z (born after 1995), representing a growing trend of younger audiences accessing programming on over the top (“OTT”) platforms in place of traditional linear television.
Seasoned management team and committed ownership: Our senior management has considerable experience and expertise in the football, commercial, media and finance industries.
We aim to increase our revenue and profitability by expanding our high growth businesses that leverage our brand, global community and marketing infrastructure. The key elements of our strategy are:
Continue to invest in our team, facilities and other brand enhancing initiatives: Dating back to our first league championship in 1908 through present day, where we have earned a record number of English League titles, we have enjoyed a rich tradition of football excellence. We believe our many years of on field success coupled with an iconic stadium and high level of fan engagement has driven our leading global brand. We are well positioned to continue reinvesting our free cash flow in brand enhancing initiatives. Our brand begins with strong on-field performance, and we remain committed to attracting and retaining the highest quality players for our first teams and coaching staff. To maintain our high standard of performance we will continue to invest in our team. We will also continue to invest in our facilities, including the Old Trafford Stadium, to maintain the quality of service, enhance the fan experience and drive their high level of engagement and loyalty. We have undertaken several initiatives at Old Trafford to enhance our Matchday fan experience, revenue and profitability including restructuring the composition of our stadium, with a particular emphasis on developing premium seating and hospitality facilities. Furthermore, we have recently installed barrier seating at Old Trafford to provide a future opportunity for safe standing for fans, subject to potential legislation being passed. Our commitment to the fan experience has resulted in strong fan loyalty with over 99% average attendance for all of our Premier League games played in front of a crowd since the 1997/98 season other than the 2019/20 and 2020/21 seasons which were impacted by COVID-19 and related government regulations. Furthermore, we continue to invest in several other areas including our digital media assets and emerging markets to grow our global fan base and increase our ability to engage with our fans in multiple ways. We remain committed to investing in our team, our facilities and other initiatives to continue our many years of success and enhance our brand globally. We expect these initiatives will continue to be key drivers of our sales, profit and leading brand recognition going forward.
Expansion and renewal of sponsors: We are well-positioned to continue to secure sponsorships with leading brands and further develop our relationships with existing sponsors. We have historically implemented a proactive approach to identifying, securing and supporting sponsors, including expanding our sponsorship team to bolster our analytical capabilities and effectiveness. We continue to place great emphasis on working with our existing sponsors and maintaining a strong renewals base. During fiscal year 2022, we announced a new training shirt partnership with Tezos, as well as two other new principal partnerships, five new global partnerships and extensions to eight existing partnerships.
Further develop our retail, merchandising, apparel & product licensing business: Currently, we have a 10-year agreement with adidas with respect to our global technical sponsorship and dual-branded licensing rights, which began on 1 August 2015. The agreement with adidas does not include the rights with respect to mono-branded licensing rights or the right to create and operate Manchester United branded soccer schools, physical retail channels and e-commerce retail channels. In the future, we plan to invest to expand our portfolio of product licensees to enhance the range of product offerings available to our followers. Additionally, we may also seek to refine how we segment the different elements of this business. We may also increase our focus on developing these rights more proactively, alone or with other partners.
Our e-commerce platform, ‘United Direct’ is currently operated under license by Fanatics in close partnership with Manchester United. We believe that the reach and engagement of our Media platform, when combined with our segmented product range, provides the platform for growth in this business.
Exploit digital media opportunities: The rapid shift of media consumption towards digital, mobile and social media platforms presents us with multiple growth opportunities and new revenue streams. Our digital media platforms, applications and social media channels are one of the primary methods by which we engage and transact with our fans around the world. We continue to evolve our media team’s capability to address these opportunities and deliver our strategic objectives.
We maintain a D2C subscription mobile application on iOS, Android, MUTV.com, AppleTV, Roku, Amazon Fire and Xbox which has as of May 2022 been incorporated into our main mobile application. These applications have enabled us to directly access new overseas territories and develop our fan base further domestically
The launch of MUTV D2C gave access to new demographics of the club’s fan base. Recent figures show that connected TV usage is highest amongst young Millennials (born 1985-1995) and Generation Z (born after 1995), representing a growing trend of younger audiences accessing programming on OTT platforms and services in place of traditional linear television.
We publish content on a daily basis on to the club’s website and mobile application. Our website provides commercial benefits for our business with greater e-commerce opportunities and more digital inventory for our commercial partners to benefit from. Our improved media products have driven a significant increase in registrations for our App and Website, up 75% during the 2021/22 season.
In addition, the proliferation of mobile devices has resulted in a need for our content to be consumed ‘on the go’ and in real time. The official mobile application builds upon the aforementioned benefits of the new website and increases the distribution of our content. We constantly iterate and improve the functionality of the club website and club mobile application, using fan insight and data to drive improvements which ultimately enhance our engagement with our fan base. Since launch, we have reached number one in the App Store’s sports category download charts in 106 markets around the world, top 10 within the sports category in 166 markets and currently have active users in over 230 markets globally.
In addition to developing our own digital properties, we intend to leverage third-party media platforms and other social media as a means of further engaging with our fans and creating a source of traffic for our digital media assets. Our digital media offerings are in the early stages of development and present opportunities for future growth.
Further, we continue to monitor the development of emerging technologies and how we can capitalize on these to create engaging fan experiences, which, in turn, can lead to new monetization opportunities. This could be achieved through harnessing the existing expertise of our partners, as has been demonstrated with HCL’s development of our award-winning mobile application and website. Subsequent to the financial year-end, we have partnered with leading IT services company DXC as our new digital transformation partner. Across this multi-year global deal, DXC will use its expertise in digital transformation to improve the way we engage with fans through our digital platforms, including ManUtd.com and the Manchester United App by harnessing the power of data and analytics technologies.
The new partnership with DXC follows the agreement with global technology company TeamViewer to become our new principal shirt partner. Our partnership with TeamViewer provides an opportunity for us to bring our fans even closer to the team they love through ground-breaking AR solutions and remote access to Old Trafford, as well as utilizing their expertise in remote connectivity services.
The club has also signed new partners who offer new fields of expertise as seen by our multi-year training kit partnership with blockchain Tezos and are continuing to develop plans to enter the NFT space. As part of the club’s partnership with Konami, Manchester United also now operates an official esports team, which is featured in global tournaments and provides new content and engagement opportunities for our platforms.
Enhance the reach and distribution of our broadcasting rights: We are well-positioned to benefit from any increased value and related growth in club distributions associated with the Premier League, the Champions League and other competitions. Season 2022/23 will be the first year of a new three-year (2022/23 – 2024/25) Premier League broadcasting rights cycle. All seven live UK packages were sold to the incumbent broadcasters – five to Sky Sports, one to BT Sport and the final one to Amazon Prime Video, which was a new entrant in the previous cycle. The value generated from the sale was consistent with the prior cycle and the terms were agreed during the COVID-19 pandemic. The international broadcasting rights for the new cycle represent a 28% uplift on the previous cycle, with international rights equaling domestic rights for the first time driven primarily by increases in North America and Europe. Overall growth for the new cycle is 16%. The ratio between the maximum and minimum broadcasting revenue that a club can receive from the Premier League in a season is capped at 1.8: 1. The international revenue growth will be allocated to merit payments, as this cap has not yet been reached, and will therefore benefit the higher placed teams.
The UEFA club competition’s three-year media rights agreement which commenced in the 2021/22 season, is worth € 3.5 billion per season, marking an increase of 9% on the previous contract. We believe these contracts underline the continuing demand for, and popularity of, live sports content and football in particular. Unlike other television programming, the unpredictable outcomes of live sports ensures that individuals consume sports programming in real time and in full, resulting in higher audiences and increased interest from television broadcasters and advertisers.
Furthermore, MUTV, our global broadcasting platform, delivers Manchester United programming to territories around the world. We plan to continue to expand the distribution of MUTV supported by improving the quality of its content and its production capabilities.
COVID-19 resulted in the postponement of the 2019/20 Premier League, FA Cup and UEFA Europa League competitions with matches suspended from 13 March 2020. This resulted in the deferral of nine remaining Premier League matches, one scheduled Round of 16 Europa League match and the final matches of the FA Cup. The 2019/20 Premier League season resumed on 17 June 2020. The delay to 2019/20 season completion, and broadcast schedule changes to the season as a whole, had implications for the agreements between the Premier League and both UK and international broadcasters, resulting in a rebate due to broadcasters on the annual fees for the 2019/20 Season of £285 million. The mechanism for allocating the impact of the rebate resulted in a reduction of approximately £11 million to amounts we typically would have earned. Half of the cash impact of this rebate has been deducted in the 2021/22 and season and the remaining half will be deducted in 2022/23. UEFA announced in its circular letter 75/2020 that gross revenues from the 2019/20 club competitions were adversely impacted by COVID-19 by a total amount of approximately €566 million, representing 16% of total revenues. This shortfall is being recouped against distributions to clubs who participate in their competitions over the five seasons from 2019/20 through to 2023/24. The reduction for each individual club is calculated in proportion to each individual club’s related revenue and therefore depends upon competition participation and progress. Based upon our performance in the 2021/22 UEFA competitions, we have estimated that our share of the reduction will be approximately €2.2 million compared to the amounts we believe we would have otherwise earned.
Diversify revenue and improve margins: We aim to increase the revenue and operating margins of our business as we further expand our high growth commercial businesses, including sponsorship, retail, merchandising and licensing.
Our Market Opportunity
We believe that we are one of the world’s most recognizable global brands with a community of 1.1 billion fans and followers. Manchester United is at the forefront of live football, which is a key component of the global sports market.
Other markets driving our business include the global advertising market, the global pay television market and the global apparel market.
While our business represents only a small portion of our addressable markets and may not grow at a corresponding rate, we believe our global reach and access to emerging markets position us for continued growth.
Our Men’s Team’s History
Founded in 1878 as Newton Heath L&YR Football Club, our club has operated for over 144 years. The team first entered the English First Division, then the highest league in English football, for the start of the 1892/93 season. Our club name changed to Manchester United Football Club in 1902, and we won the first of our 20 English League titles in 1908. In 1910, we moved to Old Trafford, our current stadium.
In the late 1940s, we returned to on-field success, winning the FA Cup in 1948 and finishing within the top four league positions during each of the first five seasons immediately following the Second World War. During the 1950s, we continued our on-field success under the leadership of manager Sir Matt Busby, who built a popular and famous team based on youth players known as the “Busby Babes.”
In February 1958, an airplane crash resulted in the death of eight of our men’s first team players. Global support and tributes followed this disaster as Busby galvanized the team around such popular players as George Best, Bobby Charlton and Denis Law. Rebuilding of the club culminated with a victory in the 1968 European Cup final, becoming the first English club to win this title.
This storied history preceded the highly successful modern era of Manchester United which began in earnest in 1986 when the club appointed Sir Alex Ferguson as manager, and in 1990 we won the FA Cup and began a long period of sustained success winning the Premier League title a record 13 times. In total, we have won a record 20 English League titles, 12 FA Cups, 5 EFL Cups, 3 European/Champions League Cups, 1 European Europa League Cup, and 1 FIFA Club World Cup, making us one of the most successful clubs in England.
At the end of the 2012/13 season, Sir Alex Ferguson retired as team manager. Sir Alex remains a key member of the club as he is a director of Manchester United Football Club Limited.
Our current team manager, Erik ten Hag, began his role on 23 May 2022 and was appointed on a three-year contract with an option to extend for a further year. Erik ten Hag previously managed Ajax where he won the Eredivisie on three occasions, the KNVB Cup twice and reached the semi-finals of the UEFA Champions League in 2018/19.
Since the inception of the Premier League in 1992, our club has enjoyed consistent success and growth with popular players such as Bryan Robson, Ryan Giggs, Eric Cantona, David Beckham, Paul Scholes, Wayne Rooney, Marcus Rashford, David de Gea and Cristiano Ronaldo. The popularity of these players, our distinguished tradition and history, and the on-field success of our men’s first team have allowed us to expand the club into a global brand with an international follower base.
Our Old Trafford stadium, commonly known as “The Theatre of Dreams,” was originally opened on 19 February 1910 with a capacity of approximately 80,000. During the Second World War, Old Trafford was used by the military as a depot, and on 11 March 1941 was heavily damaged by a German bombing raid. The stadium was rebuilt following the war and re-opened on 24 August 1949. The addition of floodlighting, permitting evening matches, was completed in 1957 and a project to cover the stands with roofs was completed in 1959. After a series of additions during the 1960s, 1970s and early 1980s, capacity at Old Trafford reached 56,385 in 1985. The conversion of the stadium to an all-seater reduced capacity to approximately 44,000 by 1992, the lowest in its history. Thereafter, we began to expand capacity throughout the stadium, bringing capacity to approximately 58,000 by 1996, approximately 68,000 by 2000, and over 74,000 in 2006. Currently, Old Trafford seats 74,240 supporters.
The following chart shows the historical success of our men’s first team by trophies won:
Premier League/Football League
FA Charity/Community Shield
EFL/Football League Cup
European Cup/Champions League
FIFA Club World Cup
UEFA Super Cup
European Cup Winners’ Cup
Football is one of the most popular spectator sports on Earth and global follower interest has enabled the sport to commercialize its activities through sponsorship, retail, merchandising, apparel & product licensing, broadcasting, and Matchday. As a consequence, football constitutes a significant portion of the overall global sports industry, according to AT Kearney.
Football’s growth and increasing popularity is primarily a product of consumer demand for and interest in live sports, whether viewed in person at the venue or through television and digital media. The sport’s revenue growth has been driven by the appetite among consumers, advertisers and media distributors for access to and association with these live sports events, in particular those featuring globally recognized teams.
The major football leagues and clubs in England, Germany, Spain, Italy and France have established themselves as the leading global entities due to their history as well as their highly developed television and advertising markets, according to AT Kearney. The combination of historical success and media development in the core European markets has helped to drive revenue, which in turn enables those leagues to attract the best players in the world, further strengthening their appeal to followers.
As television and digital media such as broadband internet and mobile extend their reach globally, the availability of and access to live games and other content of the leading European leagues has increased and live games are now viewed worldwide. In addition, advances in new technology continue to both improve the television and digital media user experience and the effectiveness of sponsorships and advertising on these platforms. These trends further strengthen the commercial benefit of associating with football for media distributors and advertisers and increase the global opportunities for the sport.
Manchester United is a member of the English Premier League, the top league in the United Kingdom, which has been, for a long time, and continues to be, one of the elite leagues in the world.
The Premier League is a private company wholly-owned by its 20 member clubs, with responsibility for the competition, its Rule Book, the centralized broadcasting rights and other commercial rights. The Premier League works proactively with the member clubs and other football authorities domestically and internationally including the Football Association, UEFA and FIFA. Each member club is an independent shareholder of the Premier League and works within the rules of football defined by the various governing bodies.
Manchester United operates under three different levels of governing bodies, ranging from worldwide to continental to national jurisdiction.
FIFA is the international governing body of football around the world. Headquartered in Zurich, Switzerland, FIFA is responsible for the regulation, promotion and development of football worldwide. All football played at any level must abide by the Laws of the Game, as set forth by FIFA. FIFA’s rules and regulations are decided by the International Football Association Board (“IFAB”) and reviewed on an annual basis. FIFA also sets the international fixture calendar which, along with European and domestic cup dates, takes precedence over the domestic football league.
UEFA is a competition organizer and is responsible for the organization and regulation of cross-border football in Europe. UEFA is primarily known for its European club competitions, the Champions League, the Europa League, and the Europa Conference League. Currently the Premier League gets four teams into the Champions League, two into the Europa League and one into the Europa Conference League. The representative structures for UEFA are primarily national association-based with the FA representing English football on numerous committees.
The FA is the national governi