Make Money From Sports!
Keshav is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The best way to feel super rich is to own a part of a sports team. Only billionaires with their cigars and their fancy cars generally know how this feels, so if you want to feel a bit like a billionaire, investing a sports team might not be such a bad idea. But is it a great investment idea? The honest answer is, no. In fact, the financial performance of sports teams is dependent on a lot of factors, and it is this uncertainty that makes investing in them a not so great idea. I have, however, identified one company that seems to be doing fairly well in terms of stability and I’m going to compare it with its polar opposite. Since I’m a bit of a pessimist, I’m going to begin with the company that isn’t great.
Manchester United (NYSE: MANU) is arguably the most recognized sports brand in the world. According to research firm Kantar Media, the football club has 659 million fans worldwide. The club of course claims that there has been no attempt made to distinguish between a casual follower and a die-hard fan, which is probably how they arrived at this humongous figure.
The IPO happened last year with the Glazer family (who also own the Tampa Bay Buccaneers) deciding to issue nearly 16.5 million Class “A” shares to the general public. The Glazer family themselves own a significant amount of Class “A” shares as well in addition to 100% of Class “B” shares. The difference between the two being that Class “A” shares have one vote each and Class “B” shares have 10 votes each. This effectively means that shareholders can barely influence decision making at the club. The other thing potential investors will have to note is the fact that the club does not plan on paying a dividend any time in the near future.
There are other risks also that one must consider when looking at the Premier League era’s most successful team. TV revenue provided to the Premier League is fairly evenly distributed amongst the team’s that participate, and this has gone up to 3 billion pounds for three seasons (2013-14 – 2015-16). This staggering amount is thanks to the increase in popularity of the Premier League world over. However, other TV revenue sources such as that from the UEFA Champions League (which is a major money spinner) is dependent on how far the team progresses in that competition. Last season Manchester United was knocked out at the group stage itself, thereby denying them a large chunk of revenue. The other major operating risk for the club is that the manager Sir Alex Ferguson is coming to the end of his career. No one knows when he will retire, but it is likely to be fairly soon. Sir Alex is arguably the biggest reason for Manchester United’s dominance in the recent past.
The other risk is that the club is highly leveraged. Large amount of funds are funneled out to service debt that the Glazers imposed on the club during their takeover. This negates the excellent work done by the United commercial department in expanding sponsorship revenue, such as the large deal done with Chevrolet very recently.
Bottom line – Stay away. The Soros family owns a fairly large percentage of the shares that have been offered. The lack of dividends also makes it a fairly poor deal, since the only way to you’ll make money on your investment is if the share price goes up and that in turn is dependent on excellent financial performances year after year, which isn’t a given.
Okay, before you get technical, I agree it isn’t fully a sports stock. It’s more of an entertainment company nowadays and I think that is why you should consider this company despite certain key numbers dipping. Viewership for the televised shows has been up and down and so has sales of PPV events. There’s competition everywhere, but mainly from the Fertita brothers owned UFC which has seen a boost in its popularity in the recent past. However, I believe that this competition is good for WWE (NYSE: WWE) and will only serve to improve the company’s bottom line.
The company has seen new talent emerge through its ranks including AJ Lee, Alberto Del Rio, Antonio Cesaro, Big E. Langston, BrodusClay and Damien Sandow. The company has also seen a fair number of former professionals taking up management positions. This is definitely a good sign as their experience in the field will be invaluable. In addition, CEO Vince McMahon is probably one of the most knowledgeable persons in this field, having spent his entire time with pro-wrestling.
Another reason why I like the WWE is its wide product portfolio. The company gets its revenues through Pay Per View shows, sponsorships, live televised shows, merchandise and even through movie productions. The company has its own studio which has produced movies such as The Marine which features WWE superstar John Cena and saw large DVD sales within the first week of its release. The company’s content is also available online on Hulu Plus which is additional source of revenue.
The company looks good. The only worry is the lack of any innovation from their side, but with UFC posing a challenge, the company will have to flex its muscles and innovate not only with newer products, but also with better plotlines and character twists. The company has also been paying a dividend since 2003, which makes it seem a far better option than the most recognizable sporting franchise in the world.
keshavr has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!