Why are Manchester United and Co still failing to dominate their US rivals?

Why are Manchester United and Co still failing to dominate their US rivals?

Another day and yet another deal for Manchester United. From the start of the 2016/17 season Virgin Money will be the Official Retail Financial Services Partner of Manchester United in the UK.

Manchester United group managing director Richard Arnold made the following comments about the newly agreed alliance with Richard Branson’s Financial Services arm:

“This exciting partnership brings together for the first time two iconic brands; two industry leaders who have a reputation as innovators in their fields. I have every confidence the values we share will make this partnership a great success, above all for our loyal fans who will soon be introduced to a range of products that will bring them even closer to the club they support.”

branson-shirt

Such news shouldn’t come as much of a surprise to the Manchester United faithful, indeed football fans more generally, as Virgin Money are just another addition to the ever-more powerful commercial armoury at Old Trafford. Under Ed Woodward’s leadership the club have continued to develop their business channels both domestically and internationally; with many arguing that the ‘Red Devils’ have firmly cemented themselves as the planet’s strongest sports brand.

Yet for all the hype surrounding United and indeed football’s continued growth, last week’s annual audit of sports clubs by Forbes produced some rather dampening results.

Their annual report saw the Dallas Cowboys, at an estimated value of £3.02bn (NFL); overtake Real Madrid (£2.75bn) to become the world’s most valuable sports club. Manchester United (£3.32bn) led the way for British clubs, maintaining 5th position for a second year running with the next best-placed Arsenal carrying a value of £2.02bn in 23rd place.

Dallas Cowboys

These are hardly concerning results, and ones that also show a level of stability in the so-called sporting pecking order (at least in value terms). But given the perceived growth in the game, why don’t football clubs dominate?

Football over the last few years has undergone something of a commercial revolution, with Manchester United so often the leaders in this respect. Overseas markets such as Asia and North America have become the targets of aggressive marketing assaults ranging from sponsorship deals to overseas tours and partnerships. Football has penetrated foreign markets like no other sport, and continues to lead the way ahead of its US rivals. Conversely, US franchises have built something of a reputation when it comes to aggressive merchandising; a real cultural phenomenon in the US and one where football clubs lag comparatively in terms of market penetration.

Loosely, these trends would point to football teams such as Manchester United catching and slowly beating their US rivals; so why the stability?

This was a question that initially stumped Stefan Szymanski in his follow up book to Soccernomics, ‘Money and Football’ (well worth a read for anyone interested in football finance). Directly dealing with the Forbes valuations, he actually found that top European clubs on the whole remained below their US equivalents, despite having similar turnover figures. Forbes value clubs based on reported turnover figures, yet there is no universal co-efficient for each team. Turnover is marked up based on what Forbes determine to be the clubs value, taking into account growth/ profitability/ debt etc. Szymanski found that football clubs were being marked down relative to US sports franchises. Why then is there supposed discrimination from Forbes?

Sports teams on either side of the Atlantic face relatively similar challenges and are both exposed to the same world economic climate. The only distinguishing factor that could explain the differential was the closed and open league systems employed in North America and Europe. Szymanski argued that the uncertainty caused by the threat of relegation was enough to discount future growth below that of clubs’ US counterparts. This may seem slightly trivial reasoning, and an impassioned United fan may argue that relegation isn’t a threat to them, but the logic is still sound. In fact, a United fan would be wrong to suggest relegation is impossible. To take the English First Division as an example, there only remains a handful of clubs that have retained their in top division status for the last 50 or so years. Aston Villa are an excellent case in point, as a club that dominated both domestically and on the continent as recent as the 1980s.

So what does this mean?

Firstly, that the US sporting system is far more stable financially. This is certainly the case for ‘Major League’ sides and really underlines the rationale for big football clubs to create their own ‘Super League’.

Secondly, and possibly more importantly, that valuations of sporting clubs are incredibly hard to make. We mentioned the brand of Manchester United earlier, a slight intangible value. But add to this other considerations such as stadia and fans and you soon realise that a valuation of a sports club is both liable to inaccuracy as well as being in some respects misleading.

Jose Mourinho

An interesting mini-league nonetheless, for most United fans there are certainly far greater prizes at stake next season!