United set for Adidas hit over Champions League
Failure to qualify for the Champions League this season will cost Manchester United £21million under the terms of their lucrative kit manufacturing deal with Adidias.
United announced a slight fall in first-quarter revenue on Thursday for 2016-17 set against the same period from last year and the club's annual payment from the German sportswear giant will drop by 30 per cent if they miss out on Europe's premier competition for a second time in succession.
The Old Trafford club began a 10-year agreement worth up to £750m with Adidas at the start of last season, when they won the FA Cup under Louis van Gaal but a fifth-place finish in the Premier League condemned them to a Europa League spot.
With Jose Mourinho at the helm, they lie sixth ahead of Saturday's keenly anticipated showdown against Arsenal.
United's chief financial officer Cliff Baty explained to the Manchester Evening News that any reduction would be spread over the remainder of the contract with Adidas.
"There is a clause in the Adidas contract that if we are missing from the Champions League for two years in a row, there is a 30 per cent reduction of the following year's receipt," he said
"So what that really means is that we would get, if we did miss out again, that would kick in and we would see 30 per cent of the future annual payment reduced.
"For example, if we received £70m, 30 per cent of that would be £21m, that we would not receive. But that is spread over the remaining terms of the contract.
"So in actual accounting terms and recognition terms, if we do miss out this year, we would get a £2m hit over the 10-year contract, but of course this is year two of the contract, so we'd have a catch-up this year.
"So broadly, we would have a £4m reduction in the revenues in this current year, and then we would have a £2m reduction in revenues every year going on from then."
In the latest financial results reported to the New York Stock Exchange, United executive vice-chairman Ed Woodward acknowledged missing out on the Champions League had already taken its toll.
Revenue up until the quarter ending September 30 was down by 2.8 per cent to £120.2m – a drop of £3.4m – with matchday income down 32.3 per cent to £16.8m and profit standing at £6.2m.
United remain on course to top last year's record revenues of £515.3m, although overall debt is up 18 per cent to £337.7m. This is largely as a result of the fall in the pound against the dollar since Britain voted to leave the European Union.
"While our financial results for this quarter reflect the impact of our non-participation in the UEFA Champions League, we are pleased that we remain on track to deliver record revenues for the coming year," Woodward said.
"During the quarter we added a number of top quality players to our squad, which once again demonstrates our determination to challenge for trophies."