4.2. Macro level – pestel Analysis
The very first part of our external analysis of Manchester United when conducting a strategic analysis is PESTEL-analysis which gives an overview of the different macroenvironmental factors that the company has to take into consideration.
Firstly we reviewed political aspects of environment in both international and English markets. Political situation in the country can impact on many vital areas of football business.
Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. According to AMB Country Risk Report,45 the United Kingdom is a country with very low level of political risk.
Also it is highly important to mention that the United Kingdom is a member of European Union. Therefore, there is the right of free movement for workers which is a policy chapter of the acquis communautaire of the European Union. This right allows football clubs to buy players from European Union freely and such players would not be considered as legionnaires.
Figure 4.1. Political Risk Summary
When we are talking about economic factors, which include economic growth, interest rates, exchange rates and the inflation rate, we should take into account that they have major impacts on how football businesses operate and make decisions. Actually, the UK’s service industries, including financial services and real estate activities, represent three quarters of economic production and the Bank of England is maintaining low interest rates and is unlikely to raise them until mid-to-late 2012.46 But on the other hand, while positive economic growth has resumed, high inflation, unemployment, tightening fiscal policy, and uncertainties regarding the eurozone sovereign debt crisis could be drags on the recovery moving forward.
So, summing up, weak economic conditions in the United Kingdom, where most of Manchester United’s matches are played and a significant portion of its merchandise is sold, and the effect of rising unemployment and lower corporate profits may have a negative impact on United’s business, as these conditions affect personal disposable income and corporate marketing and hospitality budgets. For the 2009/10 season, reduced demand for executive and box seats has resulted in approximately 16% of those facilities (by value) remaining unsold as at 30 September 2009, compared with just over 12% unsold at the same stage in the 2008/09 season.47 Continued weak economic conditions may adversely affect United’s matchday and media revenues and could eventually affect its commercial and sponsorship revenues, each of which could have a material adverse effect on United’s business and results of operations.
Also, fluctuations in exchange rates may adversely affect Manchester United’s results of operations, because its functional and reporting currency is the pound sterling and substantially all of costs are denominated in pounds sterling. However, media revenues from United’s participation in the Champions League as well as certain other revenues are generated in euro. In addition, Manchester United has modest transactional currency exposure against the US dollar relating to commercial revenue from certain sponsors. So United’s consolidated results of operations will fluctuate due to movements in exchange rates.
Trends in social factors affect the demand for a company's products and how that company operates. Actually, football is the most popular sport in the United Kingdom and is has a status as the so-called ‘‘national game’’, together with the associated levels of media coverage. It means that the level of ticket sales, broadcasting revenue, sponsorship income and value of players in the United Kingdom are the bigger than everywhere in the football world. And there are no evident facts that this situation is going to change.
Technological factors usually can lead to reduction in costs, improved quality and innovations in production or services. These developments can mean benefit to consumers as well as the companies providing the products. But the most important factors of technological development for Manchester United are penetration of the Internet in everyday lives together with developing TV broadcasting. 62,9% of English people use Internet according to Internet World Stats.48 Internet could be very useful source of promotion, e.g. using official site and social networks. Also it is a big distribution channel for selling goods.
Environmental factors are not so important for Manchester United because they include ecological and environmental aspects such as weather, climate, and climate change which may especially affect other kinds of industries. The only thing, we should take into account, is the weather conditions in which football players have to take actions.
At the same time, legal factors are highly important. Legal initiatives can affect a firm’s costs, and/or demand on products or services. Manchester United could be definitely affected by current and other future Premier League, FA, UEFA or FIFA regulations. These regulations could cover various aspects of football business, such as the format of competitions, the eligibility of players, the operation of the transfer market and the division of broadcasting income. In particular, changes to football regulations designed to promote competition could have a significant impact on United’s business. Such changes could include changes to the distribution of broadcasting income, changes to the relegation structure of English football and restrictions on player spending, such as the introduction of a player draft system or salary caps. In addition, rules designed to promote the development of local players, such as the Home Player Rule, which requires each Premier League club to include at least eight ‘‘home grown’’ players on their squads, could limit United’s ability to select players. Any of these changes for instance could make it more difficult for Manchester United to acquire top quality players and, therefore, adversely affect the performance of the First Team. But in general, legal situation is pretty stable and predictable.
Summarizing PESTEL analysis, English market generally provides favorable conditions for doing business. Stable political and economic situation, great social and technological preconditions allow Manchester United fully take advantage of its operations. The only thing is that Manchester United should just always double-check whether it comes up with legal framework or not.