Executive summary The aim of this report is to evaluate Manchester United’s strategy through a number of external and internal methods. Manchester United faces a number of challenges which include dealing with the debt which arising from the Glazer takeover and to consolidate and develop their presence in the global market. The methods used in this report are the BCG Matrix, 5 Forces, PESTLE, SWOT, VRIO and resource capability model. These methods are considered to be the most suitable for analysing Manchester United’s business approach. This report also assesses market attractiveness through recently published work and figures whilst analysing the strengths and strategies of Manchester United’s domestic and global competitors such as Barcelona and Real Madrid and comparing with the strengths and weaknesses of the ‘ManU’ brand. Recommendations to enable Manchester United to be strategically positioned to continue to compete in a global market include managerial stability, debt reduction to meet regulatory changes and release more finance for team development and to target India as a new market. Introduction Association football is a significant global entertainment product within a sports industry that accounts for 2.5% of international trade (Meeneghan and Sullivan (1999). In 2011/12 the European football market grew to €19.4 billion (up 11%), of which the ‘big five’ leagues had a market share of 48% (€9.3 billion).Within this Manchester United is one of the most significant brands with the third highest annual turnover of £320m (Deloitte, 2013) and ranked second behind Real Madrid in ‘Soccer Team Valuations’ (Forbes, 2013). Commercial links through sponsorship or partnership with high quality global companies such as Nike, Audi, AON, DHL and Turkish Airlines re-enforce the “ManU” brand and its global appeal. It combines financial power with a desirable product, i.e. sporting success, having won 41 major trophies during its 135 year history. A significant change in ownership occurred in 2005 when the club was taken back into private hands following a period as a public company listed on the London Stock Exchange (1991-2003). The acquisition by American businessman, Malcolm Glazer, was achieved using borrowed funds much of which was then transferred into a debt against the club. Following various re-financing packages debt stood at £436.9m as of 30 June 2013 (Manchester United, 2013). The ownership and governance structure is summarised in appendix 1.0 & 2.0. Manchester United Limited is the holding company for Manchester United Football Club with Red Football being the investment vehicle set up by Malcolm Glazer to fund the purchase. Manchester United outlined its strategy in the prospectus to its initial public offering of 10% of the company’s equity in August 2012 undertaken as part of the refinancing measures. This can be summarised as being to increase revenue and profitability through leveraging the brand value, expanding the global retail and marketing presence and exploiting new technologies. There are three significant features that have implications for Manchester United’s strategy. One is internal, one external and the third is a regulatory change that is a combination of internal and external. The internal factor is the succession plan for the managerial position following the long anticipated retirement of Sir Alex Ferguson, having been at the helm since 1986. The Manchester United board has been required to develop a strategy that will continue the playing success at the club on which plans to expand their current business in the growing sports industry depend. In preparation for the eventual retirement of Sir Alex, the club took advantage of a team tour to Asia in 2012 to tie up some important commercial deals. The timing was crucial as there was more chance of extending the deals when Sir Alex was still in post. The risk was that if the new manager was unsuccessful to begin with this could undermine the desirability and value of the contracts. The significant external factor is that Manchester United is not in absolute control of its brand value since this is highly dependent on the brand quality of the competitions that it plays in. Consequently it has a shared interest with its competitors in supporting these competitions. This can be seen a distinguishing characteristic of this particular market. Which manufacturers for example have an interest in their competitors continuing to be at least viable? The introduction of UEFA Financial Fair Play Regulations could have implications for paying down of the club’s debt. These changes seeks to stop the losses being made by a large number of clubs and leagues and place limits on operating losses as a condition of entry into European competitions. Similar requirements are being introduced into the English leagues. The analysis of Manchester United’s business strategy will draw upon a range of tools to assess the internal and external environments, the resources available and the structure of the markets in which it operates. Robert Grant defines strategy as “the match an organisation makes between its internal resources and skills” (Grant, 1991. P.114). Correct strategic positioning requires the organisation to be aware of clear links between three aspects which ultimately create value. Johnson and Scholes (Bridgewater, 2010) state these as environmental forces, organisational resources and competences, and stakeholder expectations. Market & Corporate analysis Competitive environment Nature of the Product A fundamental question is what is the product that is being offered? It is not a product with a physical presence that the purchaser can take home and use. At the most basic level it is the opportunity to watch competitive sport for 90 minutes about fifty times a year. However the value of the industry and the major clubs within this show that it is about much more than this. It is about passion and identity. Bridgewater (2010) reviewed the origins of football allegiance and traces the evolution from local affinity and community belonging in the early days to modern tribes, i.e. groups with shared interests. Escapism, distraction from the daily problems and the sense of belonging to a community are identified as part of the value to the supporter. Cova (1997) links the shared interest amongst the supporters to boosting their self-esteem through a sense of unity and belonging, hence in the modern world the tribe is no longer limited or defined by geography. Furthermore it is suggested that the “thing” itself is not important but it is the linking between people that matters. Significantly “... to satisfy their desire for communion, consumers seek products and services less for their use value that for what is called their “linking value””. Hence the football product is about the emotional properties. This is therefore significant in analysing the market sectors (UK, Europe and global) and commercial partnerships that mutually reinforce their “linking values”. Nature of the Market For Manchester United to continue growth as a club they must aim to achieve continued success in the English Premier League and European competitions due to the revenue generated directly from these and the platform they provide for maintaining their status and profile and driving brand value through global broadcasting. They are therefore competing at three levels, within the EPL against domestic competition, in Europe against the big Continental teams and globally against the major, predominantly European clubs for market share in external markets. The first two markets involve sporting competition and the financial competition to underpin it, whilst the third entails the effective commercial exploitation of the first two. This then requires consideration of how to develop the “linking value” of its product for the more remote global market. Market research conducted by Sport+Markt in 2008 (Kuper & Szymanski, 2012) confirmed the appeal of English clubs based on a survey of 9,600 football fans in 16 European Countries who identified their preferred team. English clubs dominated the top positions (appendix 4.0 & 4.1) whilst the overall preference was for English clubs (estimated 106.5 million). This indicates the appeal of the EPL which ‘ManU’ have exploited and can exploit further in different markets. The Boston Matrix analysis (appendix 9.0) identifies that the domestic and European markets are mature, being saturated with clubs and established supporter bases so offering limited growth but a fairly resilient income stream. In contrast parts of the global market are still developing and have considerable growth potential as their economies and supporting infrastructure develop. South-East Asia has the highest growth and market share reflecting the level of interest in the game. However this is likely to require prolonged investment to embed this to turn it into cash cows. A number of emerging markets such as India have high growth, but low market share, the “question marks”. These offer the potential to be developed with investment into cash cows or stars. Finally there are some mature markets, “the dogs” which although affluent suffer from low growth & market share due to deeply embedded popularity of alternative sports e.g. North America. Market attractiveness The football market continues to appeal with record television deals and the sport growing in a number of other countries such as China. Each year Deloitte publish a money league which assesses the strength of clubs though a range of indicators which include turnover, revenue and on field success. Deloitte emphasises that the clubs with a stronghold at the top (Manchester United are 3rd), have the largest fan bases due to “strong revenue in both domestic and international markets” (Deloitte, 2013). Broadcasting rights continue to increase in value with the new contact commencing in the 2013/14 season for the English Premier League being worth £3 billion, which is a “70% increase on the previous value” (Deloitte, 2013). Overall Manchester United could benefit from a potential £5 billion that the domestic and international markets generate over the 3 year period. Sponsorship rights are also increasing as seen in the new seven year deal between Manchester United and General Motors which is worth €54 million per season starting from 2014/15 with increases in following seasons. This surpasses Barcelona’s deal with Qatar Sports Investments which is worth €30 million per season (Deloitte, 2013). Further evidence shows that Manchester United continue to improve their commercial operations with revenue up 14% to £117.6 million, thus making it the largest element of their total compared to the year before where it was their lowest. The increase was partly down to their global partnership with DHL to sponsor their training kits. This was innovative as it was the first use of a sponsor specifically for training kits. On top of this the club concluded some regional sponsorship deals in the mobile sector which generated £20.7 million of extra revenue. However in recognition of the value of the contract with General Motors, ManU have negotiated an early buyout of their training kit deal with DHL as they look for better value from this. However on-field success is important as this is the main way to attract top sponsors. Manchester United’s failure to advance in the 2011/12 UEFA Champions League meant broadcast revenue fell by 11% to £104 million. Furthermore the distribution money they received was £29.5 million, compared to the previous season when they received for £34.22 million for reaching the final against Barcelona (Deloitte, 2013). Match day revenue also decreased by £12.1 million to £98.7 million as the team played four fewer home games. Competitor analysis Since the inception of the Premier League in 1992, there have consistently been four clubs who have dominated, namely Manchester United, Arsenal, Chelsea and Liverpool. Although Liverpool has never won they have always been near the top. Other clubs like one time champions Blackburn Rovers and Leeds United have threatened but were unable to maintain a challenge. The success of sustaining a high position year on year is down to two elements, the first being on-field success and secondly the business success off-field. The financial strengths of key domestic and European competitors are compared in Appendix 7.0 and 7.1. Most teams show an increase in revenue over the period 2009/10 to 2011/12. Whilst Manchester United’s matchday revenue matches the best, broadcasting revenue is significantly less that Real Madrid and Barcelona and Bayern Munich is by far the most successful in attracting commercial income. The Spanish teams benefit from the individual broadcasting rights allowed in Spain and in the short term this aspect is expected to be improved as a result of the new EPL broadcasting contract from 2013/14. In the longer term the Spanish system is likely to be reviewed as it has undermined the competitiveness and interest of the league. Bayern Munich’s commercial success might reflect the economic strength of German industry. The new sponsorship contact with General Motors will help to close this gap. Manchester United’s domestic strength can be largely attributed to the successful timing of stadium expansion, thus generating extra revenue. Whereas Arsenal also increased their revenue following their new stadium in 2006 they lag on the commercial side of things. Chelsea and Liverpool are both restricted by inability to expand their stadiums with Liverpool being less able to offset this through increased ticket process due to local economic conditions. Both have suffered from failing to increase their broadcast revenue, whilst Liverpool has failed to increase their match day revenue. Globally Bayern Munich is an emerging force that is trying to enter new emerging markets, but faces a challenge in increasing popularity over the established presence of Barcelona, United & Real Madrid. Whereas Barcelona and Real Madrid are popular globally they both suffer with debt and are finding ways to address this. Analysis of the language breakdown of the club websites indicates market presence. Of note is that of their principal European competitors the Spanish clubs target Indonesia whilst Bayern has a Russian version, neither of which Manchester United has suggesting some market specialisation. One of Manchester United’s aims is to grow their online presence and launched their official Twitter page in July 2013 which currently has 1,590,551 global followers (Twitter, 2013). They also have a Weibo site. Web visitor analysis found that in March 2007 Manchester United’s official website attracted 2.2 million hits with 1.3 million from outside the UK. In comparison Liverpool had 1.5 million hits whilst Real Madrid only had 1.1 million (Santomier and Costabiei, 2010. p.39). Real Madrid in 2012 developed plans to open a theme park in the Persian Gulf to attract the “well-to-do Asian and Arab fans of a more recent vintage” (Karon, 2012). This will include a club museum to go alongside a 10,000 seater stadium that will be used for pre-season training and matches. In 2004 Jose Angel Sanchez then head of marketing for Real Madrid, predicted that you will eventually get “six brand leaders” and that people will “support their local side plus one of the Worlds big six” (Karon, 2012). Furthermore Sanchez said that Madrid is not just selling football and history they are “content providers” (Karon, 2012). This is important for Manchester United to replicate and are currently in the position of one of the big six leaders of the market. A feature that distinguishes Manchester United and the EPL from other European competitors in developing and embedding interest from the Far East has been the strategy of signing Far Eastern players (Appendix 6.0) since the 2002 Korea/Japan World Cup, capitalising on the increase in the profile of football in the Asian market. Manchester United has signed three Oriental players, one from each of China, Japan and South Korea since 2004 to maintain a continuing presence in their squad (Appendix 6.1). This is an interesting trend as according to Okubo (2006) the Chinese, Japanese and South Korean markets are the “Eastern Asia Football leaders” which excellent facilities to develop International business (Okubo, 2006. P. 361). As part of the global strategy Manchester United has launched many marketing activities worldwide over recent years in the hope to appeal to the overseas market. These activities include:
External analysis PESTLE and Porters 5 Forces analyses have been carried out to assess the external market and competition factors (Appendixes 10.0). These are considered to be the most relevant for assessing the current and projected state of the global football market. They lead to the evaluation of the strengths and weaknesses in Manchester United’s strategy for competing with their global competitors. PORTERS 5 FORCES - Summary These analyses show that:
The key findings from a SWOT analysis are shown in appendix 11.0 Manchester United has developed a strong and resilient position on the back of a prestigious history that has enabled them to increase their domestic and global fan bases which enabled them to leverage commercial sponsorships. A stable and effective management team has had a role in this. The development of their stadium into the largest capacity in the EPL and effective ticket pricing provides a stable core financial base. Manchester United also competes in the EPL which generates the largest revenue of all football leagues at 1 billion Euros more than the second placed German league (Deloitte, 2013). The success of the EPL also provides a solid base for its own commercial activities. A weakness is that Manchester United’s squad is the oldest of their key competitors. This suggests a greater need for refreshing this and entails associated risks and costs. The debt burden on the club arising from the leveraged purchase of it also creates a drain of around £40m a year in interest payments reducing the money available for investing in the squad. A trophy-less season can have an immediate impact on finances like (2011-12). Whilst it would be unlikely that one poor season would cause a drop in underlying support going a long time without a trophy could be different. Opportunities arise through expanding their fan base by targeting different continents after proving very successful in southern and eastern Asia which in turn opens new commercial opportunities. Given the popularity of the EPL there could be benefits from targeting countries with traditional links to Britain or that are English-speaking. This could also represent a barrier to entry for other European teams. In relation to this is ManU’s ‘first pioneer’ advantage which they held in China and other clubs have followed suit after proving very successful. The ‘first pioneer’ advantage means the first organisation in a certain field to exploit opportunities in a new region (Bodet & Chanavet, 2010). The principal threat that Manchester United faces would be a sustained period without success allowing rival clubs to attract sponsorship deals away from them and erosion of global fan interest. In turn this can cause difficulties in attracting and keeping the best players. Another threat would be if important members of the Manchester United business structure left for a rival club, thus giving their rivals a competitive advantage. An example of this happened when Chief Executive Peter Kenyon left United to join Chelsea shortly after their high profile takeover. Again the huge debt that United currently have, which stands at £389.2M (Sky News, 2013) represents a threat to their competitive position. Internal analysis Resource and Capability Model and VRIO analyses have been carried out to assess the internal strength of Manchester United. (Appendixes 12.0-13.0). These highlight the internal factors within Manchester United’s control that can be deployed to competitive advantage over their competitors. VRIO The VRIO analysis considers the value, rarity, cost to imitate and the ability of the organisation to capture the value of its resources. Barney and Hesterly (2006) describe VRIO as a good tool to examine the internal environment of an organisation. The analysis shows the value of the supporters due to the level to which they can be exploited. The players and manager are significant due to the rarity value of their qualities. Resource & Capability Model This analysis shows that Manchester United is relatively strong through the playing squad. However the financial management is as important but weaker due to the level of debt the club holds. Several debt re-structuring exercises have reduced but far from eliminated the debt and it is important for Manchester United to resolve this with the introduction of the UEFA Financial Fair Play regulations. Recommendations The key for Manchester United is maintaining the virtuous relationship between financial strength and football success as failure in one can undermine the other. Maintain managerial stability in its broadest context to enable sustainable evolution of the business. The replacement of Sir Alex Ferguson as team manager has been completed with this in mind through selecting someone with a similar philosophy of combining development of players from within and restrained acquisition of established stars. Minimal changes to backroom staff have been made to avoid disruption. Such changes are inevitably a major risk and it is currently too early to assess the success of this transition. It is recommended that sufficient time and if necessary supporting resources are provided for the new manager to consolidate this change. The squad is the oldest amongst their principal competitors and will require refreshing in the very near future. Given the current debt interest burden and impact from the FFP regulations consideration should be given to capitalising on the values of players nearing the end of their most effective periods to fund new acquisitions. Reduce or pay off the debt to enable more profit to be used for team development as interest payments are a significant competitive disadvantage that could undermine success on the field to the longer term financial detriment. Given that owners appear to lack independent means to do this then a further minority share sale or invitation of new investors on to the Board should be pursued. However, given that he IPO in August 2012 raised £70m from approx. 5% of the shareholding, the paydown of the outstanding debt of around £400m would require a further 30% of equity to be sold, which might be unattractive to owners. A more appealing strategy might therefore be to target a complimentary investor with expertise in technology and content delivery bearing in mind lessons from the regulatory problems that arose when this was attempted with BSkyB in March 1999. The club has been successful in developing a strong foothold the Far East which needs to be consolidated given the success here also of competitors. New opportunities are presented in other markets with India being a very good prospect due to historic links with Britain, English as a second language, the size of its population (1.237 billion) and prospects for economic development. It is also passionate about sport, albeit for cricket. According to TAM Media Research in 2011, the TV viewers for football currently stand at 83 million in India which is the 3rd highest viewership behind Cricket (122 million) and Wrestling (96 million) (Akinyemi, 2011). These features might also present a barrier to entry by clubs from other European countries. The challenge is to develop India whilst consolidating the Far East. It is recommended that:
References Akinyemi, A., (2011). Soccer on the Subcontinent India’s blossoming passion for football. [Online] available at: http://edition.cnn.com/2011/SPORT/football/04/19/football.india.kolkata.derby/index.html [Accessed 27 December 2013]. Arsenal. (2013). Home page. [Online] Available at:<http://www.arsenal.com/home> [Accessed 16 December 2013] Baber, M., (2013). United adds to its Asian roster, Old Trafford MUST stay as home ground. [Online] Available at:<http://www.insideworldfootball.com/premier-league/12993-united-adds-to-its-asian-roster-old-trafford-must-stay-as-home-ground> [Accessed 23 December 2013] Barcelona, (2013). Home page. [Online] Available at: <http://www.fcbarcelona.com/> [Accessed 16 December 2013] Barney, J. B., & Hesterly, W. S. (2010). VRIO Framework. In Strategic Management and Competitive Advantage (pp. 68–86). New Jersey: Pearson Bayern Munich, (2013). Home page. [Online] Available at: <https://www.fcbayern.de/> [Accessed 16 December 2013] Bodet, G., Chanavat, N., 2010. Football's big four and building brand equity in Asia. [Online] Available at: <http://www.emeraldinsight.com/learning/management_thinking/articles/brand_equity.htm> [Accessed 30 December 2013] Bridgewater, S., (2010). Football Brands. Basingstoke: Palgrave Macmillan Chelsea, (2013). Home page. [Online] Available at: <http://www.chelseafc.com/> [Accessed 16 December 2013] Conn, D., (2013). Premier League finances: the full club-by-club breakdown and verdict. [Online] Available at: <http://www.theguardian.com/football/2013/apr/18/premier-league-finances-club-by-club> [Accessed 21 December 2013] Cova, B. (1997). Community & consumption: towards a definition of the ‘linking value’ of products or services. European Journal of Marketing, 31 (3/4), 297-316. Deloitte, (2011). The Untouchables. Football Money League. 1 (1) P. 1-44. Deloitte, (2012). Fan Power. Football Money League. 1 (1) P. 1-44. Deloitte, (2013). Captains of industry. Football Money League. 1 (1), P. 1-35. Desbordes, M., (2006). Marketing Football: An International Perspective. Oxford: Elsevier Forbes, (2013). Manchester United. [Online] Available at: <http://www.forbes.com/teams/manchester-united/> [Accessed 20 December 2013] Grant, R. (1991). The resource based theory of competitive advantage. California management review. Spring 1991. pp.114-135. Grant, R., (2013). Contemporary strategy analysis. Chichester: John Wiley & sons ltd. Karon, T. (2012). Why Real Madrid Can’t Beat Barca on the Field, But Leads Comfortably in the Market. [Online] Available at: <http://keepingscore.blogs.time.com/2012/03/23/why-real-madrid-cant-beat-barca-on-the-field-but-leads-comfortably-in-the-market/> [Accessed 24 October 2013] Kuper, S., Szymanski, S., 2012. Soccernomics. London: Harper Sport. pp.60-243. Liverpool, (2013). Home page. [Online] Available at: <http://www.liverpoolfc.com/welcome-to-liverpool-fc#> [Accessed 16 December 2013] Manchester United, (2013). Fourth Quarter and Full Year Results [Online] Available at: <http://ir.manutd.com/phoenix.zhtml?c=133303&p=irol-newsArticle&ID=1855756&highlight> [Accessed 23 December 2013] Manchester United, (2013). Home page. [Online] Available at: <http://www.manutd.com/Splash-Page.aspx> [Accessed 16 December 2013] Meeneghan and Sullivan, (1999). Marketing & Football: An International Perspective. In: M. Desbordes, ed. 2006. Oxford: Elsevier. pp.132 MIDAS, (2013). Economic overview. [Online] Available at: <http://www.investinmanchester.com/why-manchester/economic-overview/> [Accessed 29 December 2013] Okubo, O., (2006). Marketing & Football: An International Perspective. In: M. Desbordes, ed. 2006. Oxford: Elsevier. pp.338-365 Osterwalder, A., Pigneur, Y., (2010). Business model generation. Amsterdam: Wiley published. Real Madrid, (2013). Home page. [Online] Available at: <http://www.realmadrid.com/cs/Satellite/en/Home.htm> [Accessed 16 December 2013] Santomier and Costabiei, (2010). Managing Football: An International perspective. In: Hamil, S., Chadwick, S., 2010. Oxford: Elsevier. P.39 Sky News, (2013). Manchester United revenue record as debt falls. [Online] Available at:< http://news.sky.com/story/1143354/manchester-utd-revenue-record-as-debts-fall> [Accessed 23 December 2013] Twitter, (2013). Manchester United Official account. [Online] Available at: <https://twitter.com/ManUtd> [Accessed 28 December 2013] UEFA, (2013). Financial fair play. [Online] Available at: <http://www.uefa.org/footballfirst/protectingthegame/financialfairplay/> [Accessed 30 December 2013] Wood, R., (2013). Top French Court Upholds 75% Tax While Footballers Eye Exit. [Online] Available at: <http://www.forbes.com/sites/robertwood/2013/12/30/top-french-court-upholds-75-tax-while-footballers-eye-exit/> [Accessed 30 December 2013] World Economic outlook, (2013). [PDF] Washington: International Monetary Fund. Available at:<http://www.imf.org/external/pubs/ft/weo/2013/01/> [Accessed 28 December 2013] Appendix 3.0: Manchester United End of Year Financial and Business Highlights: 2013 Fourth Quarter and Full Year Results (Manchester United, 2013) RECORD ANNUAL REVENUE UP 13.4% TO £363.2M SPONSORSHIP REVENUE FOR THE YEAR INCREASED 44.1% ADJUSTED EBITDA FOR FISCAL 2013 UP 18.6% TO £108.6M ADJUSTED EBITDA OUTLOOK FOR FISCAL 2014 UP 18% TO 22% Annual Highlights FAPL Champions in 2012/13: a record 20 English League titles. Adjusted net income for fiscal 2013 increased 282.2% to £17.2m and adjusted earnings per share was up 266.7% to £0.11. Commercial revenues grew 29.7% for the year 2013 to a record £152.5m - 42.0% of total revenue. During the fiscal year, we announced: 7 global sponsorship partnerships including a world record shirt deal with Chevrolet 4 regional sponsorship partnerships, and 9 financial services and telecom agreements. Opened our first regional sales office in Hong Kong in August 2012 which has made an excellent contribution, concluding multiple deals. Acquired the remaining one-third stake in MUTV – securing full control of all our content generation and distribution capabilities. Reached 34 million Facebook followers and 32 million unique records on our CRM database compared to 26 million and 15 million respectively a year ago. Refinanced all our outstanding £177.8m GBP bonds and $22.1m of the US dollar bonds with a new term loan, resulting in interest saving of around £10m per year. It is also worth noting that in recent years City rivals Manchester City have started rivalling for similar honours. Appendix 6.0: Asian players in the Premier League Table showing Premier League teams (at the time) since 2000 that have signed Asian players as they aim to get a foothold in the market. (Green= Still at club) (December 2013) Appendix 9.0: BCG Matrix
Appendix 10.0: PESTLE Analysis Political
Social
Appendix 12.0: VRIO shows the resources that impact upon Manchester United’s competitive advantage. Appendix 14.0: Manchester United Web Presence noting range of language versions and key sponsors
(Manchester United, 2013)
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