Manchester United Could Be in for a Surprise

Manchester United is one of the most popular soccer teams in the world, with a fan base that spans the globe. The team has won numerous prestigious titles, including the English Premier League and the Champions League. Manchester United is also one of the most valuable sports franchises in the world, with a worth of over $3 billion.

Although it has lost its star player Cristiano Ronaldo, Juventus could still be a big winner – at the expense of a new owner. Its shareholders could stand to make a lot of money if the right buyer comes along.

The American Glazer family, which currently controls Manchester United, said Tuesday it was looking to bring in outside investment, including the possibility of an outright sale. The Glazers hold all of Manchester United’s B-class shares, giving them 65% of the total equity. The publicly traded A-class shares closed up 15%.

This year, there has been a lot of interest in Manchester United from U.S. private-equity firms. They see European soccer as an undervalued asset because of the pandemic. In August, Elon Musk joked that he would take over the club. Some media reports said that Apollo Global Management could buy a stake in it. But later, other people said that wasn't true. Another potential bidder is British billionaire Jim Ratcliffe.

If you're genuinely interested in owning a sports team, you'll likely have to pay a record amount. Before the latest announcement, a group led by Los Angeles Dodgers part-owner Todd Boehly bought Chelsea FC for £4.3 billion, despite Russian oligarch Roman Abramovich being forced into a fire sale due to the war in Ukraine. Manchester United's revenues are 13% higher and its massive international appeal makes its brand alone worth $1.3 billion, compared with $881 for Chelsea, consulting firm Brand Finance estimates.

Mr. Ratcliffe's involvement with Manchester United could bring new hope to fans who are eager to see the team return to its former glory. An American investment firm would likely also be focused on winning matches, but its primary concern would be generating financial returns.

Investors may want to sell their shares when they hear news of management changes. Even if the motivations behind the changes are good, buyers could still struggle to generate solid returns.

Soccer clubs tend to have slim profit margins because of the outsize power of star players and the lack of strict salary controls. The shares of the few publicly traded clubs have severely underperformed broad stock markets over the past two decades, and the return on assets of these companies is almost always far lower than average. Research finds that financial performance comes at the expense of sporting success, which is why owners have traditionally been in it for prestige or establishing cultural credibility in a foreign market.

Some analysts argue that there is no need to trade off between trophies and dividends, pointing to Liverpool FC under Red Sox owners Fenway Sports Group as an example. Italy's AC Milan also won its first domestic title in 11 years after being bought by Elliott Management.

But sustaining this success could prove hard: In the years after buying Manchester United in 2005, the Glazers also collected a lot of cups thanks to a new generation of players that included Mr. Ronaldo and Wayne Rooney. Arguably, their atypical strategy, based on shelling out £790 million for the club with a £600 million loan, and then paying the interest by milking the team for steady returns, was the best that soccer bean counting could ever achieve. While some disagreements seem to exist between family members, the next rational step would be to cash in on the capital appreciation.

If someone were to buy a club now, they wouldn't be able to replicate the same level of success. A high price would have to be paid for a club with less prestige, more angry fans, and a need to invest in players, a stadium, and sporting infrastructure. Covid-19 has increased leverage again, and competitors like Manchester City are supported by Middle Eastern money.

Investors should not discount the possibility of partnering with firms like Sixth Street Partners. These companies have found ways to secure a share of the growing broadcast and stadium revenues at clubs like FC Barcelona and Real Madrid, rather than waiting for the money to trickle down to the bottom line. This could be a lucrative opportunity for investors who are looking to get involved in the sports industry.

The sellers have the upper hand when it comes to owning the club.