The Manchester United IPO Takes to the Pitch

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If you’re a fan of the legendary Red Devils—shorthand for the Manchester United football (or soccer) team—you’re likely well aware that it started trading on the New York Stock Exchange on Friday. The club’s ticker symbol is MANU.

Wall Street, for its part, responded to the Manchester United IPO with a shrug. The stock hit the market at $14, below the expected range of $16 to $20. It has since risen slightly, to $14.15.

The Manchester United IPO Makes the Club a Rare Breed Among Sports Teams

The Manchester United IPO comes on the heels of the club being named the world’s most valuable sports team—again—by Forbes magazine, with a total value of $2.23 billion. To put that in context, the most valuable U.S.-based team, the New York Yankees, clocked in at number 3 on the list, at $1.88 billion.

This isn’t the first time Manchester United has traded publicly. It sold shares on the London Stock Exchange during the 1990s, but they generally performed poorly, mostly rising only on rumors that the team was about to be sold. That’s despite the fact that the club enjoyed one of the most storied decades in its history on the pitch. Manchester United shares were delisted after U.S. businessman Michael Glazer, who also owns the NFL’s Tampa Bay Buccaneers, bought the team for $1.5 billion in 2004.

Apart from Manchester United, only three other pro sports teams have traded on U.S. markets as independent entities: the National Hockey League’s Florida Panthers (NYSE: PAW), whose stock was delisted after the team was sold in 2001; the NBA’s Boston Celtics (NYSE: BOS), which traded from 1986 to 2002; and the Cleveland Indians, whose flirtation with the market lasted only one year, from 1998 to 1999.

The Indians’ shares performed a lot like Manchester United’s first offering in London, falling as low as $6 after the IPO. However, shareholders pocketed $22.50 a share after the team was sold for $320 million in 1999.

The NFL’s Green Bay Packers have also sold stock to the public, but their shares are more of a piece of memorabilia than an investment: they can’t be traded on a stock exchange, they pay no dividends and—worst of all—shareholders get no preferential treatment in terms of tickets.

The Manchester United IPO Is a Big Benefit to the Team’s Owners—But Not Investors

So is there any reason to add the latest issue of Manchester United shares to your stock portfolio? Most analysts think not. Here are three reasons why:

High P/E ratio in light of limited growth potential: The team arguably has one of the most recognizable names in sports. However, with 659 million fans, it’s difficult to see how it can significantly increase its profits, as Yahoo.com’s Jeff Macke points out:

“The Manchester United assets have been growing earnings at less than 10% a year despite massive global tailwinds. A 134-year franchise with global penetration has few worlds left to conquer. Apple is growing earnings at more than 20% a year and trades at under 15 times earnings, less than half the 34 times earnings the Glazers are asking for ManU. Which would you rather own?”

In addition, about two-thirds of the club’s income comes from game tickets and broadcast rights, both of which are limited in terms of growth.

Massive debt: The Glazers borrowed heavily to buy the team in 2004, and its debt now stands at a whopping $656 million. That, along with the fact that the Glazers have decided to keep half of the funds from the IPO for themselves, has raised fans’ ire—and will likely turn off potential shareholders, too.
Little shareholder control: Not only are the Glazers keeping half of the cash from the IPO, they’re hanging on to full control of the team, as well. Only 10% of the shares were floated in the IPO, leaving the family with a 90% stake. What’s more, the Glazers hold class B stock, with 10 votes per share, versus the shares sold to the public, which carry only one vote. That gives them 97% of all the votes.

Mohannad Aama, senior portfolio manager at Beam Capital, sees this as a “terrible red flag,” as the owners “can continue to act in their own self-interest after the IPO without ever having to align that interest with that of their new shareholders.”

Sergey Brin and Larry Page use a similar approach to keep a tight rein on Google (NasdaqGS: GOOG), but a 557% share-price gain in eight years is enough to make most investors look the other way. Few believe that Manchester United has anything near that kind of growth potential.

Conglomerates offer a lower-risk way to hold sports teams

Another way to profit from the popularity of sports teams is to buy shares of conglomerates that own other businesses, as well. This gives them greater diversification, as well as growth potential that may exceed that of a sports team on its own.

For example, the Madison Square Garden Company (NYSE: MSG) owns and operates the NBA’s New York Knicks, the New York Rangers of the NHL and the New York Liberty of the Women’s National Basketball Association (WNBA). It also owns the Rangers’ development team, the American Hockey League’s Connecticut Whale.

However, the company also creates and produces live events, owns theatres, including the Chicago Theater in Chicago, and operates television networks, including those that broadcast its own content, such as the MSG Network. It also owns Fuse.tv, a national television network that carries music programming.

For more value investing tips, see The Most Undervalued Stocks At Your Doorstep.