SPIRALLING player costs and lower gate receipts took a heavy toll on profits at Manchester United in the year to July.

Staff costs climbed by 21% as captain Roy Keane negotiated an increase to some #50,000 a week and other highly paid players were brought in. Net transfer spending came to #13.6m, including French international goalkeeper Fabien Barthez, who cost #7.8m.

Group profits fell from #22.4m to #16.8m, additionally impacted by a 13% drop in gate receipts to #36.6m as the number of home games at Old Trafford fell from 31 to 26. The club's stadium expansion, which cost #30m, and the return to the FA Cup competition should reverse the fall this season.

Wage costs are bound to get a further leg up next year when contracts for key players such as David Beckham and Ryan Giggs come up for renewal.

Chairman Professor Sir Roland Smith said earnings ''will be influenced by how successful we are in controlling our player wage costs and in negotiating reasonable contracts for our top players''.

There is another uncertainty ahead in the enquiry by the European Commission into transfer fees. In the worst case that they are abolished, United would lose #32m, being the balance sheet value of its unamortised players. The only offset would be that this would be a tax loss to be carried forward.

Lower gate receipts were offset by an #8m jump in television revenue to #30.5m, while merchandising turnover was 9%

up at #24m.

The new #1.6bn broadcasting contracts recently announced by the FA Premier League will boost revenue.

MUTV, the pay television venture with BSkyB and Granada, incurred lower losses of #1m and a big increase in subscribers is looked for in a year's time when action from matches will be available 48 hours after they are played.

Participation in the European Champions League was an important source of profits, accounting for 56% of the operating figure.

Merchandise margins were hit by a stock clear-out as it changed its shirt sponsor to Vodafone, which will pay #30m over four years. Sales this year will be boosted by the new home kit.

Chief executive Peter Kenyon would not confirm that Nike is about to sign a lucrative sponsorship deal, in succession to Umbro from 2002. Reports suggest this may be worth up to #20m annually.

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