27 October 2016
Paul Pogba will be paid over 17 million euros annually under a five-year contract. Photo:101greatgoals
Paul Pogba will be paid over 17 million euros annually under a five-year contract. Photo:101greatgoals

Why Manchester United paid 130 mln euros for Paul Pogba

What can you do with HK$1.1 billion?

You can snap up a small company listed on the main board of the Hong Kong stock exchange, purchase more than 100 medium-sized flats at Taikoo Shing, or, in the case of Manchester United, acquire a 23-year-old soccer player.

United paid Italian champions Juventus as much as 130 million euros (US$144 milion), or over HK$1.1 billion, for the French midfielder Paul Pogba, setting a fresh world-record transfer of football players.

Under the five-year contract, Pogba will be paid over 17 million euros annually. Excluding expenses like bonuses, the deal will cost United at least 215 million euros over the period.

The deal broke the previous record of 94 million euros set by Cristiano Ronaldo for his transfer from Manchester United to Real Madrid in 2009.

But at that time, Ronaldo was already the World Player of the Year, and far more famous than the Pogba.

The French footballer actually joined United when he was just 16 years old, but left in 2012, claiming that he felt “frustrated” and “disgusted” because former manager Sir Alex Ferguson did not let him play.

Then he joined Juventus for 1.5 million pounds (US$2 million) in 2012.

Who would have guessed United had to pay through the roof to get him back four years later?

United’s performance has been plunging after Ferguson retired in 2013.

The club was ranked seventh, fourth and fifth in last three seasons, and two managers were fired.

José Mourinho was brought in this July to lead the club out of the gloom.

United has spent nearly 200 million euros in buying players this season, exceeding the total spending in last three years, an indication of the strong financial support Mourinho has been given.

In 2005, US billionaire Malcolm Glazer bought United in a leveraged buyout deal. He borrowed short-term loans from hedge funds, paying nearly 20 percent annual interest, then transferred all the debt to the club after the takeover.

As a result, the club needs to pay almost 100 million euros in interest every year. At one point, United was believed to be on the brink of bankruptcy.

So, how come United can now afford to spend lavishly?

Though most United fans hated Glazer for saddling the club with debt, Glazer has done something right, too.

Most important of all, he introduced the US-style sports business model to United.

Leveraging on United’s popularity and strong brand, Glazer signed a number of endorsement contracts in different regions.

Sponsors now include a scooter maker in Thailand, a soft-drink brand in Nigeria, beverage maker Wahaha in China, a casino operator in South Korea, and many others.

An estimated 40 such contracts have been signed so far, giving United an annual income of over 100 million euros.

Ticket sales used to account for 60 percent of the club’s revenue a decade ago; now the share has dropped to less than a quarter of the total.

Certainly, the United needs to keep its media exposure to keep sponsors happy.

This time, the club has again grabbed newspaper headlines thanks to the high-profile transfer.

It’s estimated that Pogba may bring in 40 million pounds of extra sponsorship revenue and kit sales for Manchester United, according to The Times.

The deal may look expensive, but it is probably worth it.

In the meantime, sports are becoming a global event nowadays thanks to advanced internet technology.

As a result, broadcasting fee for Premier League games has been skyrocketing in recent years. The price of the last three-year contract surged 70 percent to 5.1 billion pounds.

The revenue pool will be divided evenly among the 20 league clubs, each getting at least HK$900 million.

Despite poor tournament results in recent years, United remains the world’s most valuable football club with a value of US$3.2 billion, according to data from KPMG.

With so much at stake, no wonder United was so keen to get Pogba to regain its glory.

This article appeared in the Hong Kong Economic Journal on Aug. 9.

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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