The less than happy story of football clubs on the stock market has a new chapter as Manchester United (MANU:NYSE) might be put up for sale by its controversial owners, the Glazer family.

Casual observers might be surprised to learn that such a significant global brand from the world’s most popular sport is valued by the market at just £3.5 billion – for context that’s roughly comparable with housebuilder Taylor Wimpey (TW.).

A sale could put a much higher valuation on the football club, with suggestions it could be worth between £4 billion and £5 billion. A bidding war could push it north of £7 billion, according to one banker cited by the Financial Times.

Before the Glazer’s announcement, Manchester United’s shares had effectively gone nowhere since joining the US stock market at $14 in 2012. The sale chatter has lifted the shares to approximately $21.

Despite being lauded for its ruthless exploitation of commercial opportunities, something former executive vice-chair Ed Woodward was supposed to be good at even when on-field matters were less than rosy, Manchester United is currently loss-making and has been for several years ever since the onset of the pandemic decimated matchday revenue.

Football clubs on sale

Among the potential bidders for Manchester United may well be a sovereign wealth fund from the Middle East. There have been a series of buyers from this region, starting when an investment company for the Abu Dhabi royal family acquired Manchester City in 2008.

Qatar Sports Investments subsequently purchased Paris St Germain in 2011 and Saudi Arabia-linked owners snapped up Newcastle United in 2021.

Many observers believe their motivation for these moves is sports-washing – using the clubs to distract the world from human rights abuses and discriminatory laws at home.

The £4.25 billion takeover of Chelsea in May 2022 by a consortium led by Los Angeles Dodgers part-owner Todd Boehly demonstrated there are others who are interested in football’s global reach.

Liverpool’s owners FSG are looking for external investment or even a full takeover which could crystallise the increase in value since the club was acquired for £300 million in 2010.

WHY UNITED HAS RACKED UP BIG LOSSES

A look at the latest report and accounts reveals Manchester United’s predicament. The company has a heavy wage bill, albeit one which will be lightened by the recently agreed departure of ageing superstar Cristiano Ronaldo.

In the 12 months to 30 June 2022 employee benefit expenses totalled £384 million. The company posted a net loss for the period of £116 million and the consensus forecast is a net loss of £66 million in the year to June 2023 and a £36.3 million loss the year after.

Football clubs principally make money through player sales, broadcast revenue, prize money, sponsorship, merchandising, and matchday revenue through tickets and sales of food and refreshments.

The clamour for the top talent, and the impact of the Bosman ruling in the 1990s which made it easier for players to move between clubs, has seen much of the wealth from a large increase in broadcast revenue expended on transfer fees and wages – to the benefit of footballers and their agents.

Covid restrictions had a negative impact on the revenue of all clubs and combined with these spiralling costs, put their finances in a precarious position.

Manchester United is saddled with £505 million of debt – which it spent £62 million servicing in the last financial year. This is a legacy of the Glazers’ takeover in 2005 which was largely funded with borrowings secured against the club’s assets. This is a big reason why many fans remain hostile to the Glazers’ ownership.

A LACK OF SUCCESS ON THE PITCH

Despite allocating billions on transfers and wages, success on the pitch has proved elusive since legendary manager Alex Ferguson left in 2013.

Since then, Manchester United has only won one FA Cup and one Europa League, thin gruel for a club and fanbase which had grown used to regular league triumphs and success in Europe’s premier competition – the Champions League. Very little of this transfer outlay has been recouped through player sales.

And then there is controversy around the mooted European Super League, which offered the prospect of no relegation and more predictable revenue. Hopes among a group of major clubs including Manchester United and Spanish giants Barcelona and Real Madrid of replicating something akin to the sporting model seen in the US were blown out of the water by a furious fan backlash in 2021. This may well have been the catalyst for the current Manchester United owners to sell.

Billionaire Jim Ratcliffe is seen as a potential suitor, having said earlier this year that he would be interested in buying if the club was put up for sale. Other potential bidders include private equity players Josh Harris and David Blitzer and a consortium led by Boston Celtics co-owner Stephen Pagliuca and Canadian businessman Larry Tanenbaum. Apple (AAPL:NASDAQ) has even been suggested as a potential buyer.

A deal won’t be straightforward. Significant investment in the squad is required to make the team truly competitive again, despite some early promise under new manager Erik Ten Haag, and the training facilities and stadium also require an upgrade.

The danger is that Manchester United’s enviable brand power, particularly in Asian markets, will eventually be tarnished by a lack of silverware and younger fans will turn to other more successful clubs.

WHICH FOOTBALL CLUBS HAVE SHARES ON A STOCK MARKET?

Manchester United is the only English football club listed on a stock market, but it is possible to buy shares in several foreign clubs including Borussia Dortmund (BVB:ETR).

Unlike Manchester United, Dortmund has done an enviable job of recruiting and selling on players – including to the Manchester club itself with Jadon Sancho sold for €85 million in 2021.

Dortmund also sold one of world football’s leading lights, Erling Haaland, to Manchester City for €60 million in 2022, three times what it paid to Red Bull Salzburg two-and-a-half years earlier.

The German club has earned itself a reputation as a place where young talent will be nurtured and given opportunities to play first-team football, and England midfielder Jude Bellingham is the latest starlet to attract envious eyes from some of European football’s biggest clubs.

As Edison analysts Russell Pointon and Richard Finch observe: ‘The company has a history of identifying and nurturing young talent that it has ultimately sold for great profits. Continuation of this is important to the company’s future profitability.’

Borussia Dortmund’s shares performed well during the 2010s, increasing 760% over the course of the decade. This coincided with a strong performance on the pitch which saw it win two Bundesliga titles, reach a Champions League final, regularly come runner-up to dominant rival Bayern Munich and win several domestic cups.

Since then, the company’s market valuation has more than halved with the shares trading at €3.56, the club hit by losses associated with the pandemic and a less impressive showing at a sporting level.

Edison’s Pointon and Finch noted results for the three months to 30 September ‘demonstrated the expected recovery in its more variable revenue streams as the club welcomed the return of more fans to the stadium’ and they see potential for Dortmund to benefit from ‘structural growth drivers of growing global interest in football,
which should enable it to continue growing its multiple revenue streams domestically and in international markets’.

They have a sum-of-the-parts asset-backed valuation for the shares of €10.50.

PURSUING COMMERCIAL OPPORTUNITIES

Other European clubs with stock market listings include Juventus (JUVE:BIT), which features alongside Manchester United in the portfolio of Nick Train’s Finsbury Growth & Income (FGT) investment trust.

Train has previously argued Italian football has lagged rivals in other countries in capitalising on commercial potential.

The club, long a dominant player in Italian football, is going through a fallow period and recently racked up a fifth consecutive annual loss, and a record one to boot, of €254.3 million for the 12 months to 30 June 2022.

Other listed football clubs include Scottish champions Celtic (CCP:AIM) as well as Ajax (AJAX:AMS) and Roma (ASR:BIT).

The mid to late-1990s was the zenith of domestic clubs joining the stock market as they looked to capitalise on the commercial possibilities provided by the launch of the Premier League in 1992 and the subsequent increase in TV money.

UK clubs whose shares used to trade on a stock market include Aston Villa, Sunderland, Newcastle United and Tottenham Hotspur. None really delivered for shareholders – and in possibly the worst example Rangers went into administration in 2012 amid financial mismanagement and a damaging tax dispute.

BETTER OFF OUT OF THE SPOTLIGHT

An exception to this tale of woe is Arsenal which saw a spectacular increase in its value until Stan Kroenke took full control in 2018 at a price of £29,419 per share. The club was priced at just £700 when it joined the stock market in October 1995.

But just as clubs being listed on the stock exchange hasn’t really worked out for investors most of the time, Kroenke’s takeover of Arsenal is reflective of the fact most clubs would rather operate outside the glare of public markets.

While it is the case that for most investors buying a season ticket in their favourite club is a more rewarding option than buying shares, there are potential investment opportunities for those prepared to take on the associated risks.

Dortmund looks undervalued if it can sustain the model which served it well in the last decade and Manchester United could be acquired for a price some way in excess of its current market value.

However, football clubs are unpredictable both on and off the pitch and failure to qualify for the Champions League, for example, can have a significant financial impact so anyone putting money into football stocks must bear this unpredictability in mind.

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