United feel the pinch as wages hit new heights

The belief that escalating wages are the biggest threat to the health of professional football was given extra impetus yesterday when the wealthiest club in the world revealed that rising pay levels were having an adverse effect on its finances.

The belief that escalating wages are the biggest threat to the health of professional football was given extra impetus yesterday when the wealthiest club in the world revealed that rising pay levels were having an adverse effect on its finances.

Manchester United reported a 25 per cent drop in annual profits and cited the increasing cost of players' wages as one of the main reasons for the results. United's total salary bill in the year to July rose 21 per cent, from £36.7m to £44.8m, and the club said £5.6m of that £8.1m increase was due to player costs. United's pre-tax profits fell from £22.4m to £16.8m, or, in other words, by precisely the same amount that player costs had risen.

Although Manchester United plc employs 526 people, player costs remain far and away the highest expenditure. The club broke its long-standing wage structure during the last financial year to keep Roy Keane at Old Trafford. The Irishman, who earns a reported £52,000 a week (£2.7m a year), is currently the club's highest-earning player. There are understood to be several other £1m-a-year players at the club and with the likes of David Beckham and Ryan Giggs due to begin contract renewal talks next year, there could soon be several multi-million-pound-a-year players.

"We are in an era where player wages will continue to rise," United's chief executive, Peter Kenyon, said yesterday, sounding an ominous warning to a wider football industry that is not, on the whole, managed as prudently as United.

When asked how rising salaries could be kept in check, Kenyon's response was: "That's the challenge, isn't it?"

United's total staff costs as a percentage of turnover, which is a key measure of a club's financial health, rose from 33 per cent to 39 per cent. This remains the lowest - and therefore the healthiest - ratio in the Premiership (where 60 per cent or more is common), but a six per cent rise is still significant. United said the salary bill could continue to rise, especially if the European Commission is successful in its attempt to have the transfer system overhauled and transfer fees, as they currently stand, are abolished.

In August the accountants Deloitte & Touche, in their annual review of the game's finances, picked United out for special praise for having the lowest wages/turnover ratio. Although that ratio remains for the moment within the "healthy" bracket of 50 per cent, the upward march exemplifies how even the best managed clubs are being drawn into a dangerous upward spiral towards 66 per cent and the risk of financial ruin.

Yesterday's results are Manchester United's first since Kenyon succeeded Martin Edwards as chief executive in July. Although profits were down, turnover increased five per cent from £110.7m last year to a record £116m by July.

Operating expenses (including wages) rose to £65.8m from £54.4m. Four new players were added to the squad during the financial year, including Fabien Barthez, who cost £7.8m. Net transfer expenditure on players totalled £13.6m.

United's gate receipts in the year to July were down to £36.6m from £41.9m due to five fewer games being played Old Trafford, mainly due to United's withdrawal from the FA Cup to play in the inaugural Club World Championship in Brazil. A total of 26 first-team games were played at Old Trafford last season - 19 Premiership matches and seven in the Champions' League. In the 1998-1999 treble-winning season, there were 31 home matches - 19 Premiership, six Champions' League, four FA Cup and two Worthington Cup.

United's television income in the past year increased significantly to £30.5m from £22.5m, mainly due to involvement in the Champions' League. Merchandising income increased by nine per cent to £23.6m, largely thanks to the launch of official club shops. United's in-house television channel, MUTV, decreased its losses from £1.7m last year to £1m.

Although yesterday's financial results came at the end of a disappointing week for United on the pitch, analysts had anticipated the drop in profits and shares were steady at around 280p. Earlier this year they touched 400p and the club, albeit briefly, was worth £1bn.

Kenyon said United had made substantial investments during the year including £30m expanding Old Trafford, £14m on the Carrington training complex and £13m on players. "We feel they give us a platform for the future," he said.