The first half of this financial year has been dominated by speculation about a possible offer for the Company from the Malcolm I Glazer Family Limited Partnership ("Glazer").
The process of dealing with our third offer period in the last 12 months has been disruptive to the smooth running of the business, creating considerable uncertainty for all our stakeholders.
I am pleased to note that the team and our staff at Manchester United have continued to perform in a highly professional manner despite the speculation. The Board believes that its strategy and business plan for the Company are strong and that over time significant value can continue to be delivered to shareholders.
Media Revenue
As previously reported, the phasing of the new three year FA Premier League contract, which started at the beginning of this season, will result in a current year like-for-like drop of up to £8 million in Manchester United's domestic media revenues, of which £3.7 million has impacted the first half year results. In addition, finishing third in the FA Premier League last season has reduced our share of the UEFA Champions League English TV pool compared to the previous season by £5.8 million in the first six months. This includes the impact of the progression of all four English clubs to the knockout stages which reduces our performance based share of the English TV pool.
Matchday Revenue
The media falls have been partially offset by the higher number of games at Old Trafford this season in the domestic cups, with sixteen home FA Premier League and UEFA Champions League games (2004 fifteen games) and five domestic cup games in the first six months (2004 Nil). Attendances were very strong with all but two Carling Cup games selling out. These domestic cup games, which generated additional matchday revenue of £4.6 million, have associated costs of £3.8million for the share of the gate paid to the opposition and the competition organiser, together with the additional costs of staging the games.
Player/Staff Costs
Staff costs were 46.6 per cent of turnover compared to 40.8 per cent at the same stage last year, at a total cost of £42.7 million (2004 £37.7 million). This increase of £5.0 million is mainly as a result of signing new players Alan Smith, Liam Miller, Wayne Rooney and Gabriel Heinze and a full period for Louis Saha (who joined the Club last January). In addition it includes new contracts for Ruud van Nistelrooy and the Manager, Sir Alex Ferguson, as well as the addition of Carlos Queiroz who returned as Assistant Manager in the summer, partially offset by the disposals of Nicky Butt, Diego Forlan and Fabien Barthez. As we signalled in last year's results, we expect our staff costs to turnover ratio to be just over 50 per cent for the year.
Player Trading
The £1.1 million loss arising on the sale of Eric Djemba Djemba to Aston Villa at the end of January was partially offset by a further £0.8 million of conditional receipts from Real Madrid (on qualifying for the Group Stages of this season's UEFA Champions League) in respect of David Beckham.
Lazio Debt
I am pleased to report that we have now collected nine instalments of the ten due from Lazio relating to the debt outstanding from the sale of Jaap Stam. These have arrived on time according to the schedule agreed in 2002 and a final payment is due in mid April. In the second half of the year we will be able, on receipt of the last instalment, to recognise compensation paid to us under the terms of this agreement of £1.5 million above the original deal.
Stadium Expansion
The continued strong demand for tickets at Old Trafford and the strength of our balance sheet and cash resources has given the Board the confidence to expand the stadium by developing two of the quadrants (north east and north west). Planning permission was received in February 2005 and contracts for the steel were placed in March 2005. Tenders have now been received for the main construction contract and are being evaluated with a view to placing that contract in time for work to commence at the end of the current season.
The project remains on track to add 7,900 new seats in August 2006, taking the capacity of Old Trafford to just under 76,000. As a result of rising raw material and building costs, the total project cost is now estimated at £43 million including a £1 million contribution to local infrastructure initiatives agreed with Trafford Metropolitan Borough Council. This cost represents £5,400 per seat but is expected to pay back over an average of 24 games a season in six years because of the mix of facilities. We will be able to accommodate a further 2,400 executive customers in these new facilities, together with 5,500 regular seats.