Manchester United faces flat sales as club reflects on Kenyon's uncertain legacy

Disappointments on the field show first sign of hitting the top line in the City
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The Independent Online

Fans of Manchester United have had to endure a string of disappointments from the domestic champions this year, and the club's shareholders are braced for some of the same today when the company announces its half-year results.

Missing from the lineup at this morning's press conference will be Peter Kenyon, the former chief executive, who left in September to pursue the millions on offer from Roman Abramovich, who lured him away to become the chief executive of Chelsea.

Mr Kenyon in turn has tried to lure Sven Goran Ericsson away from the job of England coach to replace Claudio Ranieri at Stamford Bridge, a strategy that has landed him bottom of the English football popularity league.

While Mr Kenyon's public relations crisis at Chelsea dominated the weekend headlines, it will be the legacy he left at Man Utd that comes under scrutiny today.

The club's trading period under review will be the first for which Mr Kenyon has been absent, and investors and analysts alike will be looking for clues that reveal just what Mr Kenyon's management bequest will prove to be.

Has he left the club well positioned for another five years of uninterrupted growth or are gaps emerging in the fabric of the business plan he left behind?

Certainly the City is braced for some pretty ordinary numbers from today's results. Andrew Lee, an analyst at Dresdner Kleinwort Wasserstein, is expecting sales down by 1.2 per cent to £91.5m for the six months to the end of January, with pre-tax profits ahead £1.6m to £21.9m.

However, with a stadium redeveloped to the highest standards and shortly to be extended to a 75,000 capacity, no debt and £28.6m in the bank, it seems hard to argue that the Kenyon years were anything other than a resounding success.

The legacy that David Gill, his successor as chief executive, has inherited is a little less certain. One analyst, who asked not to be named, said: "The legacy will depend on how the club performs on the pitch in the aftermath of [Mr Kenyon's] period there."

The playing squad, assembled at Sir Alex Ferguson's request but paid for by Mr Kenyon, is struggling to win silverware this season. Form on the pitch has a direct bearing on the club's financial performance off it. Man Utd's poor run of form both domestically and in the European Champions League has already knocked the share price from a recent three-year high of 279.5p down to 248p last night.

Obviously the unexpected absence of defender Rio Ferdinand has hampered the team's performance, but questions are being asked over the value for money that some of the players bought under Mr Kenyon's reign are delivering. These include the likes of Kleberson, Ronaldo and David Bellion.

The whole of Man Utd's transfer dealings are now the subject of a review, prompted by the demands for detailed disclosures on the transactions from the club's biggest shareholder, Cubic Expression, the investment vehicle of Irish business magnates John Magnier and JP McManus.

The implications arising from their 28 per cent stake in the club is another legacy that Mr Gill will have to contend with. Cubic Expression and other big shareholders, such as Malcolm Glazer, the owner of the Tampa Bay Buccaneers, originally bought into the club under Mr Kenyon's leadership because of its commercial success. That the Irish duo at least are now demanding more say in the boardroom is a potentially awkward problem for Mr Gill to contend with. Shareholder diplomacy with the so called Coolmore Mafia was probably not top of Mr Gill's priority list when he succeeded Mr Kenyon last year.

Yet a more lasting legacy, both on and off the field, of Mr Kenyon's transfer dealings could prove to be the impact of David Beckham's sale to Real Madrid last summer.

The midfield star was central to the club's popularity in the Far East and North America. These are the two areas Mr Gill must look to for much of the company's future commercial success if he is to replicate his predecessor's impressive growth achievements. Over the past five full years, Man Utd's turnover has risen from £110.6m to £173m.

Sir Roy Gardner, the chairman of Man Utd, maintains that the sale of Beckham was just good business, carried out on the recommendation of Sir Alex. But if, as expected by financial analysts, replica shirt sales are shown to be down in today's statement, then that would provide an early indication that Beckham's absence may make turning overseas markets into valuable sources of revenue more of a struggle than anticipated.

One of the most important drivers of growth during Mr Kenyon's reign as chief executive was from media rights, but here the boom in revenues seems to have peaked.

In the company's last full-year results, media rights were shown to be up 8 per cent to £56.2m. UK domestic coverage equalled £33.6m while the European Champions League accounted for £17m. Mr Gill, however, may not be able to rely on the strength of media rights in the way Mr Kenyon did.

Research from Andrew Lee of Dresdner Kleinwort Wasserstein says: "Failure to reach the European Champions League quarter finals or beyond this year will impact second half income and profits. A finishing position of third in the FA Premiership this year would also detrimentally impact profits next year, which will already be lower on a like-for-like basis due to the different structure of the new TV rights deal next year compared with the current stepped deal structure."

What may help Mr Gill in the future is the success that his club and others have in securing ownership of their own TV rights, particular for sales of games outside Europe. The internet, and Man Utd's close association with Vodafone, the mobile phone group, could also prove lucrative outlets for the media rights the club can exploit.

It is the commercial relationships forged by the club with Vodafone and Nike that are perhaps the most lasting positive testament to Mr Kenyon's time at the club. He showed other clubs the way in putting the notoriously volatile earnings of a football club on a firmer footing.

Mr Kenyon shook hands with Nike on a 13-year, £300m sponsorship and merchandising agreement while Vodafone agreed a new four-year, £36m sponsorship deal in December. This will replace Mr Kenyon's original four-year, £30m deal that ends in May.

The big attraction to these companies of linking with Man Utd is its fan base. The club is aiming to build a database of 3.5 million registered fans, potential paying customers for Man Utd branded products ranging from mobile phones to financial services.

But converting those fans into paying customers, in particular those living abroad, will be the ultimate challenge for Mr Gill. Those fans who regularly pay to turn up at Old Trafford have already started to express concern that the club is paying out too much in dividends and not enough in squad strengthening, especially in the face of the challenge to its dominance from Chelsea and Arsenal.

Mr Kenyon may well emerge as having been the scorer of Man Utd's more straightforward commercial goals while Mr Gill is left to try to finish off some rather more complex moves.

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