Fore Fore Two

 Forecasts 

After my previous post analysing United's historical financial performance, I decided to flip it on its head and produce a forecast instead. 

The created table shows United's revenue for each quarter in addition to the forecasted revenue (the line) alongside the lower and upper prediction intervals.  This forecast uses an ARIMA model (Autoregressive Integrated Moving Average) to forecast future values by considering the data, trends and seasonality.  In essence, this depicts, United's forecasted revenue (the blue line), the upper and lower prediction intervals to a 95% level of confidence (the blue shaded area) and then the same to a 95% level.  

Interpreting the results, it appears that the revenue forecast anticipates that revenues will largely remain flat.  This is unsurprising when the historical data, as seen in the last post, is highly indicative of this, with revenues having little fluctuation overall since 2015.

Unfortunately, forecasting football club revenues, due to the strong relationship between on-field performance and earnings can be difficult. If we perform a test to find the mean absolute error (MAE) this generate a value of 41.8 This suggests that the forecast is on average, off by $41.8 million.  Set against a data set that includes highs of up to $350 million and lows of under $50 million (with 80% confidence) in Q4 2024, this is a significant margin for error. 

Considering that Champions league qualification can be worth as much as around £50 million extra whilst failure to qualify can also incur penalties from sponsors (as much as an additional £20 million in the Adidas kit deal's' case),  it is incredibly difficult to accurately predict. This would require an ability to assess sporting performance as effectively as financial performance.  This also fails to consider the impact that any major changes to the overall governance and structure of the European game. Although the European Super league failed, in the event of its success, United would have seen significant rises in revenue whilst alternatively the likely impacts on revenue of the new 'Swiss' style format of the UCL remain to be seen. These are just examples of how european football's continued evolution can produce major upheaval in the underlying financials.