The Red Devil is in The Detail - Manchester United F.C. $MANU
With the World Cup kicking off today, I am putting together an analysis of publicly traded football clubs and whether any I would consider adding to my own personal portfolio.
I'm writing these for a longer individual post on my Substack which I will release later in the week, however you lucky Commonstock-ers will get to see each individual club I will analyse before I publish to Substack.
Most football clubs are privately owned and the takeovers by millionaire owners are heavily publicised, such as the purchase of Chelsea FC in May this year by a consortium led by US investor Todd Boehly or the Saudi Arabian Public Investment Fund’s highly controversial buying of Newcastle United late last year.
Even the World Cup hosts Qatar are at it, with the Emir of Qatar and the Qatari sovereign wealth fund buying French club Paris St Germain in 2011.
However, some hugely popular and global football clubs are publicly traded which means anyone can buy shares in those clubs and become an owner of a football club. Now when your team disappoints you by losing a match, not only can you be an upset fan but also a disgruntled owner too.
First club I will be looking at is the infamous Manchester United! $MANU
Manchester United needs no introduction. Probably the most successful club in English history, with 20 league titles, 12 FA Cups, 5 League Cups, 3 Champions League/European Cup titles and 1 Europa League title. The Forbes list of most value clubs puts Manchester United in 4th place.
The club was bought by the US-based Glazer family, who purchased their first stake in the club in 2003. By early 2005, they owned over 75% of the club, meaning the company had to be taken off the London Stock Exchange. Then by June of that same year, the Glazers had purchased the remaining stake until they owned the whole club.
In 2011, rumours began to circulate that the Glazers were looking to list shares in the club on a public exchange. The money raised by the listing would be used to pay down debt that the club had amassed under the Glazers’ ownership.
In August 2012, the club was listed on the New York Stock Exchange. Shares would be divided into two groups: A shares and B shares. The A shares would be listed whereas the B shares would remain with the Glazers. The B shares come with 10x more voting rights than the A shares, meaning the Glazers still remain in overall control of the football club.
Fig 1: Manchester United Share Price since NYSE Listing Source: Koyfin
The shares were listed on the New York Stock Exchange at a price of USD 14.05, they then rallied in late 2019 up to around USD 25 a share but have since fallen down closer to USD 13 a share. That price rally came after results for the financial year ending June 2018 were released, in that year Manchester United finished the year in 2nd place in the Premier League, the club’s best finish since they won the league in 2013.
The reason the financial performance of a top-level football club is so dependent on how they perform on the field is thanks to broadcasting revenues.
Fig 2: Manchester United Performance & Broadcasting Revenues Source: Manchester United & Porchester
Broadcasting revenues make up the bulk of these top-level football clubs’ revenues. You can see above, revenues from the Premier League correlate strongly to their performance for that given year.
Additionally, being in the Champions League is a huge revenue driver for football clubs. Manchester United’s appearance in the lower European competition (the Europa League) over the Champions League in 2020 saw the club receive much less in broadcasting revenues.
This is what has driven these big football clubs towards the controversial European Super League. The European Super League was a tournament proposed by a host of big clubs in which they would compete instead of the usual UEFA-run Champions League and Europa League system.
There was no qualification possible to enter the Super League, only the same group of clubs would take part every year. No qualification meant guaranteed broadcasting revenue from a European competition. From a financial perspective, the European Super League proposition makes sense for a club like Manchester United.
The Super League project fell apart on the back of a huge uproar from fans. The Super League would be anti-competitive with it being closed to new entrants and elitist by keeping the same large clubs in it and benefitting from it. The project is currently on ice, however there is no guarantee that the idea or a similar one doesn’t come back again in the future.
We will look to forecast revenues for the club for the next few years as part of our analysis, and those are the purple results in Fig 2. These are based on how the club is performing this season, however this is obviously impossible to accurately predict. As Leicester City showed in 2016, anything can happen!
Fig 3: Manchester United Income Statement & My Forecast Source: Manchester United & Porchester
The other drivers of revenue apart from broadcasting are sponsorship, merchandising and revenues from matchdays such as ticket sales. The biggest cost is far and away the employee expenses, a huge portion of which is the players’ salaries.
My forecast uses my assumptions on performance from above and their impact on broadcasting revenues. The club currently is not profitable, and if the club doesn’t significantly turn things around on the pitch, things could get worse.
Fig 4: Manchester Unites Cash Flow Statement & My Forecast Source: Manchester United & Porchester
We can then feed this income statement into a cash flow forecast for the club. Here I have assumed player purchasing of around GBP 100m a year (you see this under “Payments for Intangible Assets”), an eventual suspension of the dividend and additional borrowing. This is the only way I see the club keeping some cash flow generation, since it is very unlikely to see cash generated from operations.
Fig 5: Manchester United Balance Sheet & My Forecast Source: Manchester United & Porchester
Now we will feed our cash flow forecast into the balance sheet and see the effect that will have on the equity price. Immediately you can see the issue. The negative profits and the necessary squad investment will need the club to borrow for funding. This pushes up the liabilities significantly, shrinking the equity value.
Historically the shares have traded around 6x higher than the value on the financial statements. If we assume that holds, I see the market capitalisation falling close to 0 over the next few years.
The outlook isn’t good for Manchester United from a financial point of view if performance levels on the pitch remain the same. Without Champions League football and no sign of the European Super League either, revenues won’t be sufficient to keep the equity value up.
StockOpine's avatar
Interesting analysis Porchester. Thank you for sharing. This doesn't look good for $MANU. Even if we assume that they qualify to CL the c. 60m additional revenue will not be enough to cover expenses (although it can result to cash positive).

Also, the assumption of 50m net investment in players may not be enough for them to change their current performance. Of course, they can hit a couple of wonderkids, and everything could change.
Conor's avatar
@stockopine It's the paradox of performing better to make more money but having to pay an exorbitant amount to get the best players.

I guess they could just read the Moneyball book.
Porchester ✳️'s avatar
@conorvalue @stockopine Conor has got it spot on, they are very much between a rock and a hard place! They are underperforming and as such need to improve the squad but can’t sustainably fund the squad improvements!
Conor's avatar
@porchester thank you, Porhcester! Is it also FACT that everyone in the UK hates the Glazers?
Porchester ✳️'s avatar
@conorvalue The Man United fans absolutely despise them haha!
Todor Kostov's avatar
@porchester Thanks for sharing and interesting analysis. I think it is always subjective to try and value a sport club (any sport) since such assets are very unique and one of a kind (especially when we speak about worldwide exposure and long history).

Some people view them as an 'entertainment product' with huge brand value. According to Brand Finance, Manchester United $MANU ranks on 3rd place globally as a soccer brand with a value of above $ 1.3bn.

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Source: Brand Finance

Furthermore, in the KPMG report from last year ("Football Clubs’ Valuation: The European Elite 2021"), Manchester United $MANU have been ranked again on 3rd place worldwide with an estimated EV close to $ 3.3bn.

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Source: KPMG

To sum up, Chelsea were acquired this year for £ 4.25bn by a group led by the American businessman Todd Boehly despite a history of massive losses since 2003.

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Source: KPMG Football Benchmark
Porchester ✳️'s avatar
@kostofff totally agree, I think no large football club has ever been sold close to the true value of the business. The reason is being the owner of a football clubs gives the owner much more additional value that isn’t in the business itself. There’s obviously influence, for political reasons, as part of a broader marketing strategy and for the fun of it!

In the same way wealthy people buy art because they like it, many ultra wealthy people buy football clubs for the enjoyment!

Everything is only ever worth what people are prepared to pay for it!
Todor Kostov's avatar
@porchester Agree. Also, some purchases are done to legitimise different political regimes as well ... I'm not going to name these clubs in the UK and France :)
Porchester ✳️'s avatar
@kostofff oh absolutely! There’s plenty of “sport-washing” going on!
Conor's avatar
Porchester, well done!

  • I believe Chelsea was recently purchased in a fire sale due to the Ukraine/Russia War for $2.5 billion GBP, well over the current valuation of $MANU.
  • Why do football clubs get bought at a much higher price on the private market than they go for in the public market? Is it the control of the club the owners are looking for which they wouldn't get in this case due to the class b shares having 10x voting power?
  • How much do you believe $MANU would sell for if they sold the Glazers sold it?

Thanks again!
Porchester ✳️'s avatar
@conorvalue thanks for the comment Conor!

Yes exactly, Abramovic was forced to sell Chelsea as a result of sanctions.

As I mentioned in my reply to Todor above, there’s a lot more value to owning a top football club to an owner than the business itself. It’s influence, political clout, broader marketing, connections and also just great fun too!

This is why clubs are often sold at such a premium. Chelsea in particularly is in a very wealthy part of London, you’ll very much find the who’s-who of London higher society there. No better club out there when it comes to clout!

As you say, the A shares have such little voting rights, they are of no interest really to a serious buyer of the club. This is why I find the massive premium they trade at so puzzling. Someone who wants control would need to buy the B shares from the Glazers.

And with not only the massive premium you are seeing on the A shares but also the premium for football clubs as a whole, a buyer would have to seriously pay up!
Conor's avatar
Todor Kostov's avatar
Image upload
Source: Google Finance
Todor Kostov's avatar
@porchester @conorvalue
  • The Times: The Glazer family is ready to sell Manchester United and will seek buyers prepared to pay between £6bn and £8bn.

Porchester ✳️'s avatar
@conorvalue incredible timing with that one!

I mean, the Glazers are right, the club is a financial black hole and they are going to try to get their money out.

The fact they have had to go public with their intentions to sell shows how difficult they are finding it to find a buyer at the price they are looking for.

Their asking price will only attract a sovereign nation looking to “sportswash” or a rich guy looking to have a laugh. No private equity or anyone looking to make any money will go anywhere close to buying the club.
Todor Kostov's avatar
@porchester I think Jim Ratcliffe might go heavy here.
Conor's avatar
@porchester sadly, there are quite a few people who fit those categories.
Todor Kostov's avatar

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Source: Manchester United,
Todor Kostov's avatar

Hot off the press report from Football Benchmark on what is the value of $MANU



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