The Real Reason for our British Focus? Weak Pound!?

[Lentwood]

Many have noted that our recent recruitment drive seems very much focused on UK-based players and I have a theory on one key factor that seems to be being consistently overlooked......exchange rate!

I have a background in Economics (A level & Degree) and therefore I have a decent understanding of the huge impact the exchange rate has on the trade of goods and services across borders. It's a relatively simple concept but I will just go through a quick example;

Example 1: £1 = $2 £1 = 1000Rs
Price of 1 Tonne of US cotton = $100 (£50)
Price of 1 Tonne of Indian Cotton = 50,000Rs (£50)

Example 2: £1 = $1.5 £1 = 1000Rs
Price of 1 Tonne of US cotton = £75
Price of 1 Tonne of Indian cotton = £50

Example 3: £1 = $2 £1 = 500Rs
Price of 1 Tonne of US cotton = £50
Price of 1 Tonne of Indian cotton = £100

Sorry if the Maths isn't perfect...feel free to point out any errors....but you get the jist. In Example 1, there is no advantage in buying cotton from either the US or India. In example 2, British importers would surely prefer to purchase Indian cotton and in example 3, you would expect them to purchase from the US.

A key point to remember here is that neither the value nor the price of the cotton is changing. It is purely the 'buying power' of the £ against the $ and the R which is changing.

Now consider this from a footballing perspective.....United have purchased very few players (at large sums) from the Eurozone since the Brexit referendum. If you have been on holiday to Europe regularly over the last couple of decades, you will have noticed that whereas in the 00s, £1 was worth almost 2 Euro's, nowadays they are trading at about £1 = 1.1 Euro's. This means that your money does not go as far as it would have done ten years ago, all other things being equal.

I understand that some people might think this is a tenuous reason to look at domestic players but I really don't - not when you consider what we know about the Glazers, Ed (and his background as an accountant) as well as the fact that in every other form of 'international trade', exchange rate really DOES matter.

Just think about one recent example. Greizmann had a release clause of 130m Euro's, which Barcelona have met. In the early 00s, a British club could have purchased 130m Euro's for about £65m, nowadays the same amount would cost around £120m.....I think this HAS to have had an impact....particularly when we are bidding against clubs based in the Eurozone

CAVEAT - by no means am I saying that this is the ONLY reason, in fact I suspect it's a comparatively minor, however I do think it has an impact. Thoughts?

 

[Stacks]

Because Norway are non EU and UK will soon join them so Brexit

 

[horsechoker]

Don't we have reserves of money in different currencies?

 

[Adisa]

Most of our revenue streams are already hedged. Think it's purely a football decision.

 

[Physiocrat]

@Lentwood The weak pound makes sense as to why to buy British (I'd entirely forgotten about that in this context) however as @horsechoker says we could well have large Euro reserves. That said given the pound has been comparatively weak for a while we may not have as large a Euro reserve as in preceding years.

 

[MJJ]

Does the PL premium not compensate for the weaker pound? Plus there is no way a club of our size will have assets in only one currency.

Furthermore transfer fees are scheduled over years and are not paid of immediately unless in very rare cases.

 

[Classical Mechanic]

I think we have large cash reserves in US dollars if I remember correctly.

 

[11101]

Nice idea, but unlikely to be true.

In 2018 we received:

- 43.4m Euros
- $164.4m US dollars

We have plenty of cash available in other currencies, and we also have plenty of hedging products in place for exchange rate fluctuations.

 

[Gandalf Greyhame]

Even if we have assets in other currencies, the OP's point stays valid.

2 years ago, say: $100 = £100
Today, say: $100 = £150

2 years ago, we could buy 2 £50m British players with the money we had.
Today, we could buy 3 of the same players with the same money.

Very interesting.

 

[711]

If only someone would make it simple so people without economics degrees would understand it. It's just so complicated.

 

[Wumminator]

If only someone would make it simple so people without economics degrees would understand it. It's just so complicated.

English money down European price go up! Brexit is stupid poo poo face.

 

[MJJ]

Even if we have assets in other currencies, the OP's point stays valid.

2 years ago, say: $100 = £100
Today, say: $100 = £150

2 years ago, we could buy 2 £50m British players with the money we had.
Today, we could buy 3 of the same players with the same money.

Very interesting.

You are ignoring price inflation in the British market and over exaggerating the decline in the pound.

 

[Gandalf Greyhame]

In July, 2015, 1 GBP = 1.56 USD
In July, 2019, 1 GBP = 1.24 USD

In 2015, $100m = £64m
In 2019, $100m = £80.6m

We are essentially buying Maguire for slightly more than what we paid for Martial.

 

[Gandalf Greyhame]

You are ignoring price inflation in the British market and over exaggerating the decline in the pound.

In September 2015, 1 GBP = 1.56 USD
In July, 2019, 1 GBP = 1.24 USD

In 2015, $100m = £64m
In 2019, $100m = £80.6m

We are essentially buying Maguire for slightly more than what we paid for Martial.

The conversions account for the exaggeration. And even with 8% inflation rate over the last 4 years (which would mean 64m then = 69m now), we're still saving 10m GBP. While peddling the whole 'we're going back to our roots' line and getting players less likely to leave for the Spanish superpowers.

Edit: It's July 2015, not September.

 

[Rossa]

English money down European price go up! Brexit is stupid poo poo face.

Economics 123 for dummies right there.

 

[GBBQ]

I am sure that having money in different currencies does allow us to take advantage of fx rates changing but the problem is the British premium placed on players like Maguire or the £50 million rated Longstaff (!!!) negates any financial savings on the exchange rate.

I think the issues we have seen with players like Ronaldo, Pogba, AdM, Martial, Lukaku, DDG etc. not settling or agitating for moves at various points in time are a driver here. Invest in English players who historically do not angle for moves abroad and see United as one of the pinnacle clubs in their homeland. Much better chance that your investment in that player will be rewarded with long term commitment rather than potentially taking a loss on the transfer fee a la AdM and potentially Lukaku when they get itchy feet.

 

[MikeUpNorth]

You’re right, but it’s less about the cost of buying European players in Euros at the current time, but where it might be in the coming years.

Payments are denominated in the currency of the selling club and typically structured over many years. So if we agree a deal now in Euros, if the pound crashes further due to a bad Brexit, it will end up as a big risk in the club’s books in the coming years as the payments become due.

There’s huge uncertainty around the pound, so makes sense not to expose ourselves unduly to fx risks, if we can avoid it.

 

[Wumminator]

Economics 123 for dummies right there.

I don’t know what it is, but I have this amazing ability to connect with people who don’t understand things.

 

[quiet_united]

Wow this must be the reason why we have not sold any of our player yet. We are waiting for the pound to go up in w few years to sell these deadwood for more.

On a serious note, this would only work if other English clubs have no idea what the prices of Eu players are going for. When they evaluate a player for selling price, they would have to consider the recent price of similar players being sold in Uk and in Europe. They also need to make sure they got a fair price to go and buy a replacement maybe from outside of the UK.
Truth is, outside of UK our pulling power is very low, we wont be able to compete for talents until Ole prove his ability and as a club we show we know what we are doing.

 

[MJJ]

The conversions account for the exaggeration. And even with 8% inflation rate over the last 4 years (which would mean 64m then = 69m now), we're still saving 10m GBP. While peddling the whole 'we're going back to our roots' line and getting players less likely to leave for the Spanish superpowers.

Edit: It's July 2015, not September.

I find that point a bit overblown though, I think pavard was bought for 30 odd mil? Same with Lenglet and Umtiti. Even de light the most overjoyed player this summer will go less than maguire. That's where I feel shopping British is hurting us and a weak pound doesn't compensate for it.

 

[Addled]

Even if we have assets in other currencies, the OP's point stays valid.

2 years ago, say: $100 = £100
Today, say: $100 = £150

2 years ago, we could buy 2 £50m British players with the money we had.
Today, we could buy 3 of the same players with the same money.

Very interesting.

You are ignoring how crap we are at trying to close a transfer deal with anyone.

 

[Patrick08]

It's a coincidence, not that we are deliberately targeting British.

 

[Gandalf Greyhame]

I find that point a bit overblown though, I think pavard was bought for 30 odd mil? Same with Lenglet and Umtiti. Even de light the most overjoyed player this summer will go less than maguire. That's where I feel shopping British is hurting us and a weak pound doesn't compensate for it.

True, this calculation doesn't account for the new financial stability of other English clubs and how they can hold players to higher transfer fees now since they aren't as dependent on those amounts anymore.

 

[11101]

You’re right, but it’s less about the cost of buying European players in Euros at the current time, but where it might be in the coming years.

Payments are denominated in the currency of the selling club and typically structured over many years. So if we agree a deal now in Euros, if the pound crashes further due to a bad Brexit, it will end up as a big risk in the club’s books in the coming years as the payments become due.

There’s huge uncertainty around the pound, so makes sense not to expose ourselves unduly to fx risks, if we can avoid it.

We have a ton of forward contracts in place so this does not become a problem.

Even if we have assets in other currencies, the OP's point stays valid.

2 years ago, say: $100 = £100
Today, say: $100 = £150

2 years ago, we could buy 2 £50m British players with the money we had.
Today, we could buy 3 of the same players with the same money.

Very interesting.

On paper yes, in reality no. A $100m player remains a $100m player when you are paying in $. We maintain Euro and Dollar reserves for this exact reason.

 

[MikeUpNorth]

We have a ton of forward contracts in place so this does not become a problem.

From the last annual report:

Fluctuations in exchange rates may adversely affect our results of operations.

Our functional and reporting currency is pounds sterling and substantially all of our costs are denominated in pounds sterling. However, Broadcasting revenue from our participation in UEFA competitions, as well as certain other revenue, is generated in Euros. We also occasionally enter into transfer agreements or commercial partner agreements which are payable in Euros. In addition, we have US dollar currency exposure relating to our secured term loan facility and senior secured notes as well as Commercial revenue from certain sponsors. We hedge the foreign exchange risk on a portion of our future US dollar revenues using a portion of our US dollar denominated secured term loan facility and senior secured notes as the hedging instrument. While we recorded foreign exchange gains in our income statement on our unhedged US dollar denominated secured term loan facility and senior secured notes of £5.0 million and £1.8 million for the years ended 30 June 2018 and 2017, respectively, we incurred a loss of £4.1 million for the year ended 30 June 2016. For the years ended 30 June 2018, 2017 and 2016 approximately 6.5%, 7.0% and 7.0% of our total revenue was generated in Euros, respectively, and approximately 20.7%, 21.3% and 24.0% of our total revenue was generated in US dollars, respectively. We may also enter into foreign exchange contracts to hedge a portion of this transactional exposure. We offset the value of our non-sterling revenue and the value of the corresponding hedge before including such amounts in our overall revenue. Our results of operations have in the past and will in the future fluctuate due to movements in exchange rates.

https://ir.manutd.com/~/media/Files/M/Manutd-IR/documents/2018-mu-plc-form-20-f.pdf

 

[Pogue Mahone]

If only someone would make it simple so people without economics degrees would understand it. It's just so complicated.

I’ll be honest. I was floundering through examples 1 and 2 but think I may just have grasped the concept after example 3.

 

[Web of Bissaka]

If this is true, Ed only bothers about this first, in this transfer window.

The big difference between this window and last year is the different manager.
Last year, Ed care sith nothing about it - bought Fred and Dalot.

 

[devilish]

I think its more of an internal politics problem.

Manchester United have over 50 scouts, the legacy of SAF + 3 failed administrations. In the past months and so, that bloated scouting team had been criticised not only by the media but also by former players. We presume that if this system irks the likes of Gaz then it will irk Ole as well as they all share pretty much the same football upbringing and the same mentality. Also former players tend to have inside information (Butt?) so when they say something it probably have some truth in it.

Before anyone tries saying that Devilish is against the class of 92 yada, yada, lets me stop you there and then. I think that they are right on this occasion. You see, the manager can't micromanage everything. He can't be doing training sessions, sort problems at squad level, check the youth academy talent while concurrently travel to Portugal or Brazil to scout a player. The attributes Sir Alex would want in a player might differ to what Moyes want which would differ to what LVG wants, Mou or Ole wants. For example, LVG was never really concerned about players who are physically strong. What he cared about is ball possession. That changed with Mou who built a CM around 6ft+ midfielders.
Thus is why scouts are usually brought in either by the DOF who tend to bring consistency to the side as he's the one to chooses the manager and the scouts or alternatively by the manager. Scouts and manager must be on the same rhythm as scouts are the eyes and ears of the manager.

Now United's structure since before Sir Alex is that the manager is at the pinnacle of everything football related. That's something Sir Alex, Woodward, Ole and all other former managers had basically stated at different points of United history. Thus, we've got a situation were we've got a horde of scouts, from different philosophies, most of whom differs to that of the manager. So how on earth can the manager trust these guys? Which explains why our only two signings are players whom Ole knew about (AWB) or/and someone who was recommended by someone Ole trust (aka James from Giggsie). We're also linked with Longstaff (whose rumoured to be recommended by Carrick), Diop and Maguire (EPL proven players whom Ole knows very well).

The problem with that is that because the EPL is the richest league in the world, players residing in it tend to cost a bomb. Which I guess might force Ole to relent and end up trusting his scouts blindly.

 

[Pogue Mahone]

I think its more of an internal politics problem.

Manchester United have over 50 scouts, the legacy of SAF + 3 failed administrations. In the past months and so, that bloated scouting team had been criticised not only by the media but also by former players. We presume that if this system irks the likes of Gaz then it will irk Ole as well as they all share pretty much the same football upbringing and the same mentality. Also former players tend to have inside information (Butt?) so when they say something it probably have some truth in it.

Before anyone tries saying that Devilish is against the class of 92 yada, yada, lets me stop you there and then. I think that they are right on this occasion. You see, the manager can't micromanage everything. He can't be doing training sessions, sort problems at squad level, check the youth academy talent while concurrently travel to Portugal or Brazil to scout a player. The attributes Sir Alex would want in a player might differ to what Moyes want which would differ to what LVG wants, Mou or Ole wants. For example, LVG was never really concerned about players who are physically strong. What he cared about is ball possession. That changed with Mou who built a CM around 6ft+ midfielders.
Thus is why scouts are usually brought in either by the DOF who tend to bring consistency to the side as he's the one to chooses the manager and the scouts or alternatively by the manager. Scouts and manager must be on the same rhythm as scouts are the eyes and ears of the manager.

Now United's structure since before Sir Alex is that the manager is at the pinnacle of everything football related. That's something Sir Alex, Woodward, Ole and all other former managers had basically stated at different points of United history. Thus, we've got a situation were we've got a horde of scouts, from different philosophies, most of whom differs to that of the manager. So how on earth can the manager trust these guys? Which explains why our only two signings are players whom Ole knew about (AWB) or/and someone who was recommended by someone Ole trust (aka James from Giggsie). We're also linked with Longstaff (whose rumoured to be recommended by Carrick), Diop and Maguire (EPL proven players whom Ole knows very well).

The problem with that is that because the EPL is the richest league in the world, players residing in it tend to cost a bomb. Which I guess might force Ole to relent and end up trusting his scouts blindly.

On the player’s being recommended stuff, we’ve also been linked by someone who Fletcher rates highly, Nathan Collins.

For once, I’m in agreement with you. Our whole scouting/recruitment situation seems to be an absolute car crash. Every new manager has an uphill battle from day one. It’s quite funny (and, of course, depressing) that Moyes identified this as a huge problem almost as soon as he took over but nobody seemed to care at the time.

 

[do.ob]

I think its more of an internal politics problem.

Manchester United have over 50 scouts, the legacy of SAF + 3 failed administrations. In the past months and so, that bloated scouting team had been criticised not only by the media but also by former players. We presume that if this system irks the likes of Gaz then it will irk Ole as well as they all share pretty much the same football upbringing and the same mentality. Also former players tend to have inside information (Butt?) so when they say something it probably have some truth in it.

Before anyone tries saying that Devilish is against the class of 92 yada, yada, lets me stop you there and then. I think that they are right on this occasion. You see, the manager can't micromanage everything. He can't be doing training sessions, sort problems at squad level, check the youth academy talent while concurrently travel to Portugal or Brazil to scout a player. The attributes Sir Alex would want in a player might differ to what Moyes want which would differ to what LVG wants, Mou or Ole wants. For example, LVG was never really concerned about players who are physically strong. What he cared about is ball possession. That changed with Mou who built a CM around 6ft+ midfielders.
Thus is why scouts are usually brought in either by the DOF who tend to bring consistency to the side as he's the one to chooses the manager and the scouts or alternatively by the manager. Scouts and manager must be on the same rhythm as scouts are the eyes and ears of the manager.

Now United's structure since before Sir Alex is that the manager is at the pinnacle of everything football related. That's something Sir Alex, Woodward, Ole and all other former managers had basically stated at different points of United history. Thus, we've got a situation were we've got a horde of scouts, from different philosophies, most of whom differs to that of the manager. So how on earth can the manager trust these guys? Which explains why our only two signings are players whom Ole knew about (AWB) or/and someone who was recommended by someone Ole trust (aka James from Giggsie). We're also linked with Longstaff (whose rumoured to be recommended by Carrick), Diop and Maguire (EPL proven players whom Ole knows very well).

The problem with that is that because the EPL is the richest league in the world, players residing in it tend to cost a bomb. Which I guess might force Ole to relent and end up trusting his scouts blindly.

I think that's a bit naive. You don't go to your scouts and tell them to bring you random good players, you have positional profiles and key attributes you're looking for and thus the scouts don't have to be your soulmates, they just have to be able to create some sort of attribute matrix for players. Much like the guys who do player profiles for games like FIFA and FM.

 

[VorZakone]

I don’t know what it is, but I have this amazing ability to connect with people who don’t understand things.

You should sign up for The Economist, not The Athletic.

 

[devilish]

I think that's a bit naive. You don't go to your scouts and tell them to bring you random good players, you have positional profiles and key attributes you're looking for and thus the scouts don't have to be your soulmates, they just have to be able to create some sort of attribute matrix for players. Much like the guys who do player profiles for games like FIFA and FM.

I don't think that's how it works...at least not from what I heard from scouts I've met including Sir Alex brother whom once I had pleasure sharing a pint with. Sure a manager would give scouts the technical characteristics he would want however alot is left unsaid. Its up to the scout to know the manager or the DOF so well to know exactly what type of player the manager or the DOF would appreciate and want at the club. As said the scout's job is to be the manager's eyes and ears. You don't preempt your eyes or ears to see or hear everything you wish or not wish to see/hear.

Ah and I almost forgot. Even in the case were the scouts are absolutely trusted there are times when the manager decides to scout the player himself. Take for example Kagawa were Sir Alex himself confessed of going to a match of his alongside Phelan to check the kid out prior to signing him. In Ole's case there simply wasn't the time for him to do so. He's been made a permanent manager just few months ago and throughout most of that time he was stirring a ship out of a perfect storm.

 

[11101]

From the last annual report:

https://ir.manutd.com/~/media/Files/M/Manutd-IR/documents/2018-mu-plc-form-20-f.pdf

Read further down the report to see the forwards and futures contracts we have in place. If we agree a transfer deal in Euros to be spread over the next 12 months and we pay for it from our GBP reserves, we will get forward contracts in place to guarantee the exchange rate. It might look like a loss on paper but the important thing is to reduce risk by having a guaranteed price.

 

[NWRed]

Many have noted that our recent recruitment drive seems very much focused on UK-based players and I have a theory on one key factor that seems to be being consistently overlooked......exchange rate!

I have a background in Economics (A level & Degree) and therefore I have a decent understanding of the huge impact the exchange rate has on the trade of goods and services across borders. It's a relatively simple concept but I will just go through a quick example;

Example 1: £1 = $2 £1 = 1000Rs
Price of 1 Tonne of US cotton = $100 (£50)
Price of 1 Tonne of Indian Cotton = 50,000Rs (£50)

Example 2: £1 = $1.5 £1 = 1000Rs
Price of 1 Tonne of US cotton = £75
Price of 1 Tonne of Indian cotton = £50

Example 3: £1 = $2 £1 = 500Rs
Price of 1 Tonne of US cotton = £50
Price of 1 Tonne of Indian cotton = £100

Sorry if the Maths isn't perfect...feel free to point out any errors....but you get the jist. In Example 1, there is no advantage in buying cotton from either the US or India. In example 2, British importers would surely prefer to purchase Indian cotton and in example 3, you would expect them to purchase from the US.

A key point to remember here is that neither the value nor the price of the cotton is changing. It is purely the 'buying power' of the £ against the $ and the R which is changing.

Now consider this from a footballing perspective.....United have purchased very few players (at large sums) from the Eurozone since the Brexit referendum. If you have been on holiday to Europe regularly over the last couple of decades, you will have noticed that whereas in the 00s, £1 was worth almost 2 Euro's, nowadays they are trading at about £1 = 1.1 Euro's. This means that your money does not go as far as it would have done ten years ago, all other things being equal.

I understand that some people might think this is a tenuous reason to look at domestic players but I really don't - not when you consider what we know about the Glazers, Ed (and his background as an accountant) as well as the fact that in every other form of 'international trade', exchange rate really DOES matter.

Just think about one recent example. Greizmann had a release clause of 130m Euro's, which Barcelona have met. In the early 00s, a British club could have purchased 130m Euro's for about £65m, nowadays the same amount would cost around £120m.....I think this HAS to have had an impact....particularly when we are bidding against clubs based in the Eurozone

CAVEAT - by no means am I saying that this is the ONLY reason, in fact I suspect it's a comparatively minor, however I do think it has an impact. Thoughts?

I don't mean to be picky, but this is wrong, it's £66.67 to the nearest penny.

As for the general point, although I think the focus on domestic players is due mainly to Ole wanting a British core to the side rather than any financial issues. Given the prices being quoted by PL clubs for inexperienced players it would still be cheaper to shop on the continent if the exchange rate and it's consequences were the main driving force behind the decision.

 

[izec]

Nope, if we sell Pogba or Lukaku, i can guarantee you the replacements will not be British.

 

[Rossa]

I don’t know what it is, but I have this amazing ability to connect with people who don’t understand things.

It's incredible. I realised later there was even a very easy to understand explanation of what Brexit entails. Ever considered going for prime Minister? Plenty of people in politics that don't understand that you could enlighten!

 

[do.ob]

I don't think that's how it works...at least not from what I heard from scouts I've met including Sir Alex brother whom once I had pleasure sharing a pint with. Sure a manager would give scouts the technical characteristics he would want however alot is left unsaid. Its up to the scout to know the manager or the DOF so well to know exactly what type of player the manager or the DOF would appreciate and want at the club. As said the scout's job is to be the manager's eyes and ears. You don't preempt your eyes or ears to see or hear everything you wish or not wish to see/hear.

Ah and I almost forgot. Even in the case were the scouts are absolutely trusted there are times when the manager decides to scout the player himself. Take for example Kagawa were Sir Alex himself confessed of going to a match of his alongside Phelan to check the kid out prior to signing him. In Ole's case there simply wasn't the time for him to do so. He's been made a permanent manager just few months ago and throughout most of that time he was stirring a ship out of a perfect storm.

I'm sure there is also a lot of nuance involved, but then again most of the people involved are professionals, it's up to the higherups to communicate their preferences and it's up to the scouts to understand subtleties of the(ir) game. I doubt there is a special bond betweens scouts and coaches, do you read a lot about mass layoffs of scouts or who scouting departments switching clubs with a coach?

And I would expect every eventual signing to be thoroughly scouted by the final decision maker, if not live then via videos.

 

[Sky1981]

If player a is valued at 50 euro.

Paying in poundsterling, rupiah, rupees, renminbi doesnt change the amount that the seller receive.

Dear lord some of you

 

[Oldyella]

If player a is valued at 50 euro.

Paying in poundsterling, rupiah, rupees, renminbi doesnt change the amount that the seller receive.

Dear lord some of you

Yes, but it would affect the amount the buyer sends...

Anyway, it's an interesting thought but I dont think it's anything to do with our recent transfers, we are just seeing Utd try something new after last several years hasn't worked.

 

[Sky1981]

Yes, but it would affect the amount the buyer sends...

Anyway, it's an interesting thought but I dont think it's anything to do with our recent transfers, we are just seeing Utd try something new after last several years hasn't worked.

What does that even means?