Today, I want to take a closer look at Manchester United (NYSE:MANU) shares — this is the first time I’ve found an excuse to write about football.
As many investors will know, New York-listed United shares have been driven higher by the prospect of a takeover. So let’s take a closer look at this stock.
Big returns
If I’d bought £100 of Manchester United shares a year ago, I’d now have £202. The stock is up 101% over 12 months.
All of these gains have come in recent months following the announcement by its owners, the Glazer family, that they’d be selling the club.
On-the-pitch performance doesn’t really make a difference — at least mid-season.
Takeover bids
After months of speculation, we saw some real movement on Friday, as two bidding groups placed confirmed offers for the club before the Glazer’s soft deadline.
On one side we have Qatar’s Sheikh Jassim Bin Hamad Al Thani — the son of Emir of Qatar, Sheikh Hamad bin Khalifa Al Thani — a United fan with Qatari money. This bid appears to be a favourite, so far.
Then there’s Sir James Ratcliffe’s INEOS group. He’s also a United fan (although he’s also a Chelsea season ticket holder). And as Ratcliffe’s bid is reliant on borrowing, INEOS seems second favourite.
Valuing football clubs
Football teams are often bonfires fuelled by cash. But that doesn’t stop them changing hands for billions — just look at Chelsea and AC Milan last summer. And talk of multi-billion pound takeovers has grown with United up for sale, Liverpool being open to investment, and Spurs owner Joe Lewis putting a £4.5bn price tag on his North London club.
However, it’s not just football. There were more than $15bn of deals for pro-sports clubs in 2022 — more than any year on record. Sport is clearly big business.
But valuing sports clubs, particularly football clubs, can be challenging. Companies are normally valued on future earnings. Working with future cash flow forecasts for the next 10 years, investors can work out how much they’d pay for that company today.
Football is different. Clubs regularly lose money, and when there is a profit, you often hear fans demanding that money be reinvested, normally in the form of transfers. So how do clubs reach these valuation figures?
The Markham Multivariate Model is one way to value a football club.
| Club value = (Revenue + Net Assets) x [(Net Profit + Revenue) ÷ Revenue] x (% stadium filled) / (%wage ratio) |
But this model isn’t perfect. Using the metric, Liverpool — my favourite — is valued at £1.2bn, according to analysis from a valuations expert. But that’s much less than the £4bn the owner Fenway Sports value it at.
English football is volatile — much more so than the American NFL where regulation isn’t a threat and TV revenues are more evenly shared. However, I believe English clubs offer huge growth potential, albeit with performance-related risks. The Premier League increasingly resembles the proposed ‘Super League’. Revenues are growing and fan bases with it.
And there’s more to monetise. United has a reported fan base of a billion people, but only generates around £600m, in revenue annually. This is where the promise lies, even though United can’t sell London-priced tickets.
If I wasn’t a Liverpool supporter, I’d buy shares in Manchester United.
