Executive Summary
The report has been developed to evaluate and assess the different sources of finance available to a sports organisation of the likes of Manchester United. In the report, various finance sources have been analysed for the organisation and the incumbent sources being utilized by it. The report has also outlined recommendation of which source of finance should the organisation utilize in accordance with their suitability.
Introduction
Manchester United is one of the most popular soccer teams of United Kingdom with its headquarters in Old Trafford, Manchester. Manchester United was founded in 1878 and listed for New York Stock Exchange in 2012. The largest source of finance for the organization is sponsorship agreements that consist of 31.4% of revenues, followed by broadcasting with 31.3% and event revenue of 25% (Fried, DeSchriver, and Mondello, 2013).
Sources of Finance
Sports organisations have variety of finance sources depending on the size of the organisation. Manchester United has an international following and also participates in international tournaments. However, the primary source of finance for this organisation is commercial sponsorship.
Commercial Sponsorship
Commercial sponsorship is a payment to a property in lieu for access to commercial potential related to the entity (Kartakoullis, Vrontis, Thrassou, and Kriemadis, 2013). It is conducted with anticipation of a commercial return unlike non-profit organisations that are sponsored philanthropic reasons. For instance, a commercial brand can offer financing for a sports team in agreement for the latter wearing its brand logo. It is similar to investment where one entity invests in the other due to its profitable functions. In this case, a commercial entity invests in a sports team due to its popular nature that would also promote the brand. Commercial sponsorship comprises as the largest source of financing in the case of Manchester United. It has sponsorship agreements worth £135.8 million and monetizes global brand by establishing sponsorship agreements. The organisation has developed segmentation sponsorship strategy with product-specific, regional and international segments. Sponsors for Manchester United include Toshiba, Nike, General Motors, Bulova, and Adidas. Nike has been the key sponsor or Manchester United in the last ten years by sponsoring their training kit for £302.9 million agreement. The jersey sponsors include Chevrolet, Aon, AIG, and Vodafone. Manchester United can further bolster its revenues by engaging other brands in commercial sponsorships. It can attract further sponsors as well due to it being highly popular on both domestic and international sports arena (Otley, and Emmanuel, 2013). The disadvantage of this method is that commercial interests and involvement may harm professionalism in sports, and organisations may end up performing to appease sponsors only.
Stock Market financing
Stock market financing consists of an entity selling its stocks to general public in stock markets. Manchester United was founded in 1878 and listed for New York Stock Exchange in 2012. Stock listing increases ownership levels for an entity as any person eligible for purchasing shares can be a prospective owner. Thus, there is joint shareholding among different stakeholders (Stewart, 2014). Furthermore, it is also a risk-averse source of financing as the finance raised from this method is equity investment by investors. Stock market financing would be an ideal platform for Manchester United to raise their finance sources. The popularity and fan base of the organisation is such that stock sales to general public is likely to be well-received by the fans and they would be motivated to invest in their team. Supporters of the organisation would go at any length to show support to their team, thus, it is likely that there would be high purchase trend for the stocks of the organisation. Additionally, the huge amount of sponsorships being received by the organisation would ensure that greater returns are provided to the shareholders, who would be motivated to invest from a commercial perspective as well. However, the risk involved in this method is its high volatility. Stock values rise and decline immediately, which may lead to inconsistent returns for shareholders, and investment may decline.
Crowd Funding
Crowd funding is an important source of finance for a sports organisation. It is one of the methods of financing that is solely dependent on the performance of the sports team. Crowd funding involves sales of match tickets, souvenir sales, and proceeds from food and beverage. Income from this source is dependent on the size of the crowd, which is attracted from the popularity and performance of the team (Forster, 2006). Manchester United is one of the best teams of United Kingdom and is celebrated worldwide. Hence, the organisation has an established popularity and it is regarded as one of the best performing teams. The team is able to pull enormous crowds in a given match due to its large international and domestic fan base. Thus, it is possible to raise huge finance from crowd funding, however, it is necessary that the performance of the team is up to par in order to maintain and/or increase finance from crowd funding. The Old Trafford stadium of Manchester United has a record of 99% utilization rate of the games that are hosted there, apparently due to popularity of the team. However, if the performance of the team is below par, crowd funding may not be able to generate sufficient level of finance for the organisation.
Bank Loans
Bank loans are known as debt financing for an organization (Wilson, Plumley, and Ramchandani, 2013). It is another suitable source of financing for sports organisation. However, debt financing is also dependent on the performance and standing of the sports organisation. The financial institutions, such as banks would only finance an organisation as long as there is sufficient security for payback terms. It provides liquidity to the organisation and assists in expedition of any pending projects. Bank Loans, however, can increase the level of insolvency concerns for the company as well, if there are raised in huge amounts. However, it is a suitable source of finance for Manchester United, as it has strong credentials in terms of financing position. The banks would be readily available to finance the organisation due to its strong perception and financial position. However, the organisation would need to maintain their momentum in order to strengthen their financial credentials.
Conclusion
It can be observed that there is a variety of finance sources available for Manchester United. However, it is important that an efficient financing structure is developed by the sports organisation to ensure that sufficient funds are available to meet the growing needs and value addition in the team. It is also essential that the financing structure of the company is largely equity financed so that there is minimum insolvency risk for the organisation. Thus, it would be recommended that due to popularity of the team crowd funding, and commercial sponsorships are undertaken by the organisation as these are risk-averse source of finances.
List of References
Forster, J., 2006. Global sports organisations and their governance. Corporate Governance: The international journal of business in society, 6(1), pp.72-83.
Fried, G., DeSchriver, T.D. and Mondello, M., 2013. Sport finance. Human Kinetics, New York.
Kartakoullis, N.L., Vrontis, D., Thrassou, A. and Kriemadis, T., 2013. Strategic resource planning for football clubs. Journal for International Business and Entrepreneurship Development, 7(1), pp.1-20.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer, Berlin.
Stewart, B., 2014. Sport funding and finance. Routledge, NJ.
Wilson, R., Plumley, D. and Ramchandani, G., 2013. The relationship between ownership structure and club performance in the English Premier League. Sport, Business and Management: An International Journal, 3(1), pp.19-36.
