A Chance to Own Shares in One of the Most Storied Franchises in Sports
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Have you ever been to a sporting event and looked around at tens of thousands of screaming fans? Having already paid a substantial sum of money to even attend the game, the fans proudly wear their apparel sporting their favorite player’s name, at the same time munching on food priced at levels that make movie theater prices look cheap. Have you ever wished you could have a stake in all the profits being taken in by sports franchises, maybe have a stake in the New York Yankees or Dallas Cowboys?
On Friday August 10th, 2012 one of the first sports franchises to ever do so went public. Manchester United Limited (NYSE: MANU) is a soccer club that plays in the English Premier League and currently boasts famous players such as Wayne Rooney and Ryan Giggs. Owned by the Glazer Family, Manchester United has won 12 Premier League titles, 11 FA Cups, and 1 FIFA World Cup. The stadium they call home is known as Old Trafford, which has a capacity of 75,811 people. Manchester United raised $233 million by offering 17 million shares at $14, below the expected range of $16 to $20. Based on this share price, Manchester United is worth $2.3 billion, making it the world’s most valuable sports franchise. So is stock going to be a goal over the coming years?
Where are the Cowboys and Yankees?
Manchester United’s public offering is one of the first times a sport franchise has been publicly traded; nut why isn’t every sports franchise public? First, the owners of the franchises do not want to have to listen to both fans and shareholders. Should they use the $10 million on their balance sheets to acquire a superstar striker, or should they pay out a dividend. The line that sports franchises would have to walk if they went public would be thinner than a penny. If the owner tended to fans more than shareholders, the shareholders would become upset, while if the owners tended to the shareholders, the fans would become disgusted, and may cheer for another team. Additionally, while sports franchises are profitable, they aren’t tremendous business models. For instance, in 2010 Manchester United reported an operating loss of 47.5 million euros. In 2011, Manchester United swung to a profit of 13 million euros. The success of the franchise deeply depends on the accomplishment of the team, and rises and falls with good and bad seasons. Finally, Manchester United is a very seasonable business, as the soccer season is not a year round ordeal. Not many sports franchisees are public because it complicates the business, and can be unnerving to fans.
No Vote, No Filings, No Thanks
The Glazer family did not want to lose control of company when it went public, so they formed a system that allowed them to retain supreme power. Manchester United sold 17 million Class A shares, each one with a vote. The Glazer family holds Class B shares, with 10 votes a piece, effectively allowing the Glazer family to retain voting authority. Additionally, the soccer team, founded in 1878, stated that it qualifies as an “emerging growth company” under the Jumpstart Our Business Start-Ups Act of 2012 because it produced less than $1 billion in revenue in its last fiscal year. This act relieves the club from reporting particular financial requirements for up to five years, including having its underlying business approved by an auditor. While I don’t believe Manchester United is a Ponzi scheme, it is nerve-wracking for shareholders to not receive cold-hard numbers that display the state of the business. Simply put, as a shareholder you get no voting rights and limited financial information, making this company one I would think twice about before investing in.
The Fundamentals of the Underlying Business
In 2006, Manchester United stated that it had earned 243 million euros in revenue. In 2010 Manchester United reported revenue of 350 million euros. That represents a 44.03% increase in revenue over five years, a decent rate for any company. Based on these statistics, Manchester United’s compound annual growth rate is 7.57%. A high single digit growth rate is sizable, but there are many more options in the market with more explosive growth. The chart below displays Manchester United’s revenue from 2006 to 2010.
Compared to its competitors, and rivals, Manchester United is in the middle of the road, with Manchester City leading the pack and Liverpool pulling up the rear.
To buy a share of Manchester United at $14.00 a share, the investor would be paying 5.68 times 2011’s revenue. That is revenue, not earnings. Roughly 5.5 times last year’s revenue represents Manchester United’s stock trading at a huge premium to where it should be priced.
The Foolish Bottom Line
Manchester United is one of the most celebrated sports franchises in the world, but as a publicly traded company is not even worth a look. The challenges management faces are far too voluminous. After all, if being a publicly traded sports franchise was so great, all teams would be publicly traded. Additionally, shareholders receive no voting power as well as limited financial security. On top of all that, the stock currently trades at a ridiculous multiple. The offering price had to be lowered because of a lack of interest, and the underwriters of the deal had to support the stock at $14.00 all day long, something that last happened in the Facebook public offering. So if you want to make money off of Manchester United, sell food at reasonable prices outside of Old Trafford, don’t buy the stock.
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