Recently I heard a report saying that "Manchester United actually has two sets of accounts"?

Recently I saw a report saying that "Manchester United actually has two sets of accounts", and I was shocked. People who understand financial management are familiar with the statement of "two sets of accounts", which is not uncommon for small and medium-sized enterprises that govern irregularly. Most of them disclose the processed reports to the public in order to avoid taxes.

However, describing a listed company that should be well-managed is more terrifying, which is equivalent to directly accusing Manchester United of financial fraud.

While criticizing the city rival Manchester City for being accused of hundreds of financial violations, he secretly "worked two accounts" on his own. Could it be that the American boss with "thick eyebrows and big eyes" also "betrayed the revolution"?

It can be said that we don’t understand football, but we can’t say that we don’t understand corporate governance!

The "mystery" of the accounts

This starts with Manchester United's equity structure.

As we all know, Manchester United is a New York Stock Exchange listed company. It should be noted that Manchester United plc (hereinafter referred to as "plc"), the main body of the listed company, is a shell company registered in a "tax haven" and a famous offshore financial center, Cayman Islands. It also disclosed the consolidated statements of this shell company to the Securities and Exchange Commission. Therefore, most of the outside world's financial analysis of Manchester United is based on plc's financial reports.

According to The Athletic, Red Football Limited (hereinafter referred to as "Red Football" or "RFL"), a fourth-level wholly-owned subsidiary of listed entity plc, is the auditing entity of football regulators such as the Premier League or UEFA. This is a British company established in February 2005 and is part of the capital operation of the Glazer family's acquisition transaction. Manchester United Football Club Limted is a third-level wholly-owned subsidiary of RFL. According to Premier League regulations, clubs can only submit financial information about registered companies in the UK.

UF's latest "European Club Financial and Investment Structure Report" disclosed that Manchester United's pre-tax loss in the 23/24 season was 42 million euros (about 36 million pounds), which is basically consistent with Red Football and also indirectly confirms that it is Manchester United's "football account book". The reason why Manchester United's internal equity structure has only been exposed now is that the financial reports of plc and Red Football are almost the same as that of the past two seasons, and there has not been a significant deviation.

According to the 23/24 annual financial report, the plc pre-tax loss amounted to an astonishing £131 million, while the pre-tax loss of Red Football was only 36 million, the difference between the two was nearly 100 million. The differences mainly include:

1) ​​The plc account was overcharged by 43 million Ratcliffe in the acquisition of shares of listed companies;

2) RFL began to collect internal funds from the parent company's interest of 25 million, which was offset internally at the plc level;

3) The 12 million foreign exchange income generated by US dollar bonds in the RFL account was not included at the plc level;

4) RFL also charged 10.5 million service fees to other related parties in the group, which was the remuneration corresponding to employees' engagement in group affairs (such as investor relations work).

From a nature point of view, the reasons for these differences are reasonable. The truth is that the performance of PLC and RFL deviates from the past two years is clear. The so-called "two sets of accounts" are not the infamous "internal and external accounts". The companies at different levels of the group have different tasks. As the listed entity, plc has borne more capital operation-related expenses, and financial information at all levels such as Red Football is also relatively open and transparent. The good-willed people are going to be disappointed. This is not a "big melon", let alone financial fraud.

Moreover, it is not the amount of Red Football's book count, but the Premier League and UEFA must review it accordingly. The Athletic said the above 2,500 internal interest income and 12 million foreign exchange earnings may not be included in the break-even test, and the "non-football cost" that can be excluded as required.

In other words, even if Manchester United filed plc's statements to the regulator, costs such as acquisitions or investor relations maintenance that are not related to football operations can be declared exempted, which is essentially no different from reporting with Red Football as the main body. In this way, the "melon" of "two sets of accounts" is even more boring.

The acquisition cost of Sir La Jazz will not affect Manchester United's financial audit

Compliance situation

In fact, as the worst-lossing 21/22 season (145 million pounds before tax) is far from the three-year rolling review window, from the perspective of Premier League Profit and Sustainable Rules (PSR), Manchester United has escaped the dangerous period of losses exceeding the limit and there is no need to tamper with the accounts.

Even if calculated based on the plc's statement, Manchester United's adjusted football-related losses are still largely balanced from the three-year upper limit of 105 million, and it is even more "safe" than Liverpool, a mortal enemy known for its balance of income and expenditure. The latter has a three-year upper limit of only 15 million in total loss due to lack of shareholder capital increase.

Therefore, the Red Devils' next team building plan will not be subject to financial supervision restrictions, but this does not mean that they can let go of their hands and feet and spend money on their money.. Under PSR, the maximum pre-tax loss (estimation) for Premier League teams allowed in the 24/25 season (estimation)

In terms of income and expenditure, missing the European game next season will cause the club to suffer huge revenue losses. Not only will it not be able to obtain European game bonuses, but some sponsorship contracts will also be discounted. The game day income will also decline due to the reduction in games. The team's cost is also configured according to the European game level. Even if there are performance-linked terms, the space that can be saved is limited.

Cash flow level, although Ratcliff invested 300 million pounds last year, Manchester United's cash reserves had dropped to 73 million as of the end of March this year. Sir La said that the club will pay 89 million previous transfer fees this summer (the balance of net transfer fees payable as of the end of the 23/24 season was as high as 271 million), and it can be foreseen that a lot of funds will be spent on building a new stadium in the future. Although there is still 90 million bank credit available, the "British richest man" should not want to increase the club's loan scale that has reached 713 million.

At the same time, Ratcliff, who was born in an industry, frequently cried out to the outside world and implemented various cost reduction plans in the club, which caused internal and external complaints.

In a nutshell, the Red Devil can still spend money, but it needs to be carefully calculated. Of course, everyone understands that Manchester United's problem has never been money.

Manchester United spent more than £60 million to introduce Cunha

Regulatory difficulties

At the moment when football capital operations are becoming increasingly frequent, it is not uncommon for group operations to make accounts indistinguishable between clubs and parent companies, and it also poses new challenges for regulators.

Theoretically, it is meaningless for the club to do tamper with the review subject. The regulator has the right to review the nature of each income and expenditure and require the club to provide financial information of other relevant subjects.

For example, the European Club Financial and Investment Structure Report disclosed that Manchester City's salary expenditure in the 23/24 season was £476 million, 63 million higher than the figure disclosed in its financial report, which is included in the related costs borne by other affiliates of the City Group for Manchester City.

However, in the broader business world, UEFA and the Premier League lack binding force on the investors behind the club. Their authority is limited to the football level, and the power to review the relevant entities in the club is extremely limited, which is also a common problem in football fiscal supervision.

Blue Moon is the "thorn" of financial regulators

Therefore, not only Manchester City, supported by the National Sovereign Fund of the Oil, can blatantly bypass supervision, but other "mindful people" can also use a little means and compete with supervision.

Chelsea's current parent company, Blueco 22 Limited, paid nearly £50 million in sales-related service fees to former director "Sister No" Granovskaya and others in the 21/22 fiscal year, because the remuneration is not included in the Chelsea account without being included in the labor contract signed by the club and employees. This is understandable.

But former Blues boss Abramovich has become much more "wild". From 2012 to 2019, he used offshore companies to secretly pay tens of millions of fees related to player transactions. UEFA has no channel to notice this. If it were not for the new American boss who took the initiative to report, voluntarily plead guilty and pay fines in exchange for avoiding more serious punishments, and there is no media revelation, this would become an eternal secret.

In contrast, Manchester United is really "clean and clean". After all, Glazer and Sir La are eager to spend less...