Louis Van Gaal needs high finish for Manchester United after huge spending
Manchester United manager Louis van Gaal has been told that he is expected to finish no lower than third in the Premier League this season, with no substantial further additions to the squad after this summer's £153.1m outlay.
The club's failure to qualify for European football will finally halt their commercial juggernaut, with the lack of Champions League matchday income leading the club to predict that their revenue will drop £48m in the next financial year, from £433.2m to £385m.
Even that £48m drop in revenue is based on United finishing third – the same Premier League target that last year's budget was based on. Executive vice chairman Ed Woodward yesterday told investment analysts in a conference call: "Our (forecast) budgets assume a third-placed finish, as is ordinarily the case."
United lie 14th in the table after the first three games of the season, with two points, five fewer than the early third-placed side, Aston Villa, and seven off top-placed Chelsea. United have indicated that they are willing to go back into the transfer market and take the calendar-year spend on players towards £200m if Van Gaal still feels his squad is not strong enough. But the tone of Woodward's discussion with investors suggested that there would not be big spending in January.
"We don't intend to significantly increase cap-ex (capital expenditure) in January," Woodward said.
"We will continue to monitor, in association, with Louis his view of the squad and which areas we want to strengthen and which areas we want to sell.
"The usual three in, three out is par for the course in the numbers in and out each year, typically in the summer.
"I wouldn't have expectations for January but if there is a willingness from the manager, we will engage with him and if there is an opportunity, we will try and take that, as we did last year with Juan Mata."
The immediate cost of David Moyes' failure as manager was £5.2m – the figure that United have revealed in their financial results for the 2013-14 season that they paid out to sack the Scotsman and his staff.
The club's income continued to grow to record levels in the last financial year, despite the dire on-field performance. Though the new £53m-a-year Chevrolet kit deal does not deliver revenues until this financial year, the club still managed to deliver a £23.9m profit on the back of the improved TV deal. A one-off tax credit included in last year's accounts skewed the new profit figure. But when that is taken off, the profit was shown to have grown by 20 per cent.
Woodward described United as a club on the threshold of "a new chapter in the club's history", after summer spending.
"With Louis van Gaal at the helm as manager, and the recent signing of some of the world's leading players to further strengthen our squad, we are very excited about the future," he said.
Some clubs would be concerned by the effects of an expected £48m drop in revenue on their ability to comply with Premier League Financial Fair rules.
These permit a club to increase wages by a mere £4m plus any additional non-TV income.
But after a 19 per cent lift in wages in 2013-14, United said they expected the salary figure to drop next year, with players entitled to fewer bonuses because of no European football.
"We expect total wages to be down, due to the sale, retirement of players and no uplifts due to not playing in the Champions League," the club said.
Meanwhile, Ryan Giggs insists Manchester United's commitment to youth development remains strong.
The recent sale of Academy graduate Danny Welbeck and the heavy spending of the summer transfer window have suggested priorities could be changing at Old Trafford.
But Giggs – himself one of United's greatest youth products – denies that is the case.
Giggs, who is now assistant manager under Van Gaal, said: "The club will never change. The history of the club is to play exciting football, always give youngsters a chance, keep to the traditions of the club.
"Okay Danny has left but this is a manager who gave Seedorf his chance, Kluivert his chance, Iniesta his chance, Xavi, Thomas Muller – he has got a track record of giving youngsters a chance.
"We have got to make sure young players come through. That has been (the case) right through the history of Manchester United and we never want to lose that."
What the figures actually mean at Old Trafford
- Record annual revenue of £433.2m for last season; this is the club’s total income and does not include outgoings such as wages, taxes and transfer fees.
- Current season’s estimated revenue to be £385m to £395m, a drop of £38m to £48m as a result of missing out on Champions League.
- Profit of £23.8m; this is down from previous year’s £146.4m but that huge sum was entirely due to a one-off tax credit from American assets of £155m.
- Underlying profits, known as EBITDA and used as a guide to the health of a company, were £130.1m for 2013/14, compared with £108.6m the previous year, but these are expected to fall to £90m to £95m next year.
- £5.2m is the cost of the compensation paid to sacked manager David Moyes and some members of his coaching team.
- United’s wage bill rose 19 per cent to £214.8m, an increase of £34.3m.
- United’s sponsorship income increased by 49 per cent last year with a number of new deals coming on stream. Commercial income now makes up 44 per cent of the overall revenue.
- Spending on new players was £78.9m net, including the signings of Juan Mata and Maroune Fellaini but not those who have joined since June such as Luke Shaw, Angel di Maria and Radamel Falcao.
- The gross debt — which dates back to when the Glazer family bought the club — is down to £341.8m from £389m, and the cost of servicing that debt down to £27.4m. In 2010, five years after the takeover, the debt had risen to £710m from an initial £660m. Since 2010, large chunks of the debt have been paid off.