Manchester City had a disappointing 2016/17 season with so much being expected of them. The appointment of Pep Guardiola was a message of intent followed by significant player investment, however he failed to get Manchester City going, finishing trophy-less with an early Champions League exit the biggest failure of the lot.

Fast forward to 2018 and things look a lot more rosy with the team cruising to the Premier League title while already having a trophy in the bag and the chances of a historic treble still on the cards.

This article looks at the financial performance of the club last season in a year where profits dropped significantly despite record revenues due to rising costs from investment into the squad.

The financial accounts for Manchester City this year are for 13 months after the club decided to change their accounting period, this means that figures are slightly overstated as compared to last year on the basis of an extra month being included.

Revenue Analysis

Revenue rose impressively in the year, growing from £391.7m to £473.4m (20.9%) despite poorer performances on the pitch, this growth was driven mainly by the commercial success of the club and the new Premier League TV deal which has boosted all Premier League club’s income.

Matchday revenue stayed fairly consistent with last year, falling ever so slightly to £51.9m from £52.5m, a measly 1.1% drop on the back of the introduction of an away ticket price cap of £30, limiting the revenue that all Premier League clubs can earn on away days.

Broadcasting revenue rose significantly, increasing from £161.3m to £203.5 (26.2%) with the new Premier League deal masking a large revenue loss due to their poor Champions League performances. Champions League revenue fell from £61.2m to £47.9m (21.7%) after Manchester City were knocked out at the last 16 stage having made the Semi-Finals the previous season. However the new Premier League TV deal, coupled with a League Cup win over Liverpool led to broadcasting revenue domestically rising from £100.1m to £155.6m, a huge 55.4% increase.

Commercial revenue is a key barometer to success for Manchester City, who this year broke the £200m barrier for revenue from this area. Commercial revenue increased from £177.9m to £218m after a raft on new sponsorship deals as the club continue their aggressive global strategy.

Manchester City’s revenue growth shows no sign of slowing down, the club will be expecting revenue to rise once again with a Premier League trophy all but sealed and an improvement on their progression through the Champions League already, broadcasting revenue will definitely rise. Commercial revenue will continue to increase and should break the £250m barrier next year, while the club expect to announce a new kit deal with Puma who will replace nike, the full effect of that will not be seen for a couple of years however.

Manchester City are well on course to break the £500m barrier in terms of revenue. Talking about £500m …

Expense Analysis

Operating expenses rose in a big, big way as Manchester City broke the £500m as the club continue to expand massively in order to become a dominant European force. Expenses rose form £389.8m to £506m (29.8%). This was due to all areas of expenses rising, notably amortisation and wages.

Amortisation costs rose from £94m to £121.7m (29.5%) as the club continues to invest in players with 10 players joining the club with more to come on this in the next section.

Other costs such as stadium maintenance and general expenses to keep the club running rose as well, increasing from £76.9m to £94.2m (22.5%) as the club matches their investment in players with running the club off the pitch.

Wages broke the £250m barrier rising significantly from £197.6m to £264.1m (33.7%) as the club’s new players commanded huge wages as well as new contracts for their top stars and the arrival of Pep on a huge salary. These costs will be expected to rise past £300m in the coming season on the back of even larger wages after transfers this season and contract renewals. The wage increase of an eye-watering £66.5m works at at nearly £1.3m extra a week in wages!

Manchester City are a well run club, carrying minimal financial debt (more on this later) and instead having debt in relation to their stadium. This has led to the club having no net interest expense, helping to keep the club growing in a sustainable way.

The club paid no tax on their profits in the year, taking advantage of carried forward losses in the club from the early years of the Abu Dhabi era where significant investment was not matched by revenue, leading to heavy losses.

Transfers Analysis

Manchester City had  a busy transfer window bring in 10 players at a cost of £191.7m while letting go of half that amount in 5 players for a total of only £31.8m, arriving at a net spend of a huge £159.9m.

In came Stones (£50m), Sane (£45m), Jesus (£28.8m), Gundogan (£24.3m), Bravo (£16.2m), Nolito (£16.2m), Marlos Moreno (£4.5m), Rulli (£4.2m), Zinchenko (£1.8m) and Pablo Mari (£0.2m).

Out went Jovetic (£12.2m), Dzeko (£9.9m), Rulli who had just joined (£6.3m) and Lejeune (£1.4m) while Bony left on loan for a fee of £2.1m.

Manchester City increased their net spend from £132.7m to £159.9m (20.5%) with a mixed degree of success last season. Players such as Stones and Sane struggled to adapt at their young age, Unlike Gabriel Jesus who started on fire after his January move. Bravo and Nolito failed to adapt to the physicality of the Premier League, with Bravo being replaced by Ederson in goal for the current season and Nolito moving back to Spain. Gundogan struggled for fitness and has looked more assured this season.

Manchester City saw a huge increase in profit on player sales as Dzeko and Jovetic helped the club to a profit of £34.6m, up from £20.7m last season, a impressive 67.1% rise.

Asset/Liability Analysis

As alluded to, Manchester have little financial debt instead, most of their debt relates to the costs of their stadium for which Manchester City have a lease for. This didn’t stop net debt from rising after a large decrease in cash levels.

The value of their lease debt stayed fairly stable, falling from £66.7m to £66.3m (0.6%).

Cash fell dramatically from £55.8m to only £18.7m (66.5%) as the club invested greatly in itself. A huge increase in transfer fees paid in cash was a large reason for this, increasing from £130.9m to £199.3m (52.3%) while investment in facilities also rose significantly from £18.1m to £27.6m (52.5%).

This led to net debt rising from £10.9m to £47.6m, a remarkable 336.7% increase.

Manchester City City did however see their potential liability on loyalty bonuses and transfer fees fall 10% from £121.4m to £111m on the back of the exits of Jovetic and Dzeko and legacy transfers failing to meet clauses set on them.

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