Manchester United: A Consumer Goods And Licensing Play That Participates In Sports

| About: Manchester United (MANU)

Manchester United's (NYSE:MANU) revenue and earnings (report here) per share came in ahead of analysts Wednesday morning. The company reported large increases in commercial revenue and matchday revenue, and also saw a large tax credit. Wall Street wasn't impressed with the earnings, as shares remained flat for the day. Much has been made of the team's high debt load and its dependence on signing the best talent and winning trophies. However, the company gets over half of its revenue from commercial revenue, and relies less on tickets and broadcasting deals than people think.

The famous soccer club signed ten new sponsorships during the first quarter. One was signed with Bakcell, the largest telecommunications company in Azerbaijan. Over 2.5 million customers will have access to ManchesterUnitedTV and other exclusive content in the country. The deal is a three year partnership with Manchester United. Another recent deal saw Manchester United selecting Kagome as their official soft drink in Japan. Kagome is a fruit and veggie drink specialist. The deal runs through the 2015/2016 season.

The most notable recent sponsorship revolves around General Motors' (NYSE:GM) decision to put its Chevrolet logo and name on the team's soccer jerseys. Another recent deal saw Manchester United break its sponsorship relationship with DHL as the official sponsor of training kits. Manchester United was the first major English club to allow a sponsor on its training kit. DHL paid $65 million for four years as the sponsor, but Manchester United has broken that deal early, as it believes it can find a higher deal.

Here is a breakdown of first quarter sales:

· Commercial Revenue: $68.19 million, +24.3%

· Broadcasting Revenue: $21.73 million, -37.4%

· Matchday Revenue: $31.08 million, +13.3%

· Total Revenue: $121.00 million, +3.4%

The company/team posted a profit of $32.51 million in the quarter, versus a loss of $7.93 million a year ago. Earnings per share came in at $0.21, after analysts had expected a loss. Analysts on Yahoo Finance were calling for first quarter revenue of $75.59 million, which the tax credit and commercial revenue helped beat.

Commercial revenue saw increases in all three operating segments. Sponsorships were up 32.4%, retail and licensing was up 11.9%, and new media and mobile was up 11.5%. The company opened a new Hong Kong office, and is also working on expanding its retail store presence.

Broadcasting revenue was hit by timing differences when the Champions League games were played compared to last year. Two games that would have fallen into the first quarter will hit second quarter revenue. Matchday revenue was helped by 9 Olympic games being played at Old Trafford, the home of Manchester United.

Big news came out recently that NBC Sports, owned by Comcast (NASDAQ:CMCSA), won the rights to broadcast all English Premier League games in the United States. This is a huge win for Comcast, as its re-branded sports network continues to gain rights to sports, and offsets the decline in viewership from the NHL lockout. Comcast paid $250 million for three years, and will have exclusive English and Spanish media rights in the United States for all 380 games each season. The previous deal with Fox (NASDAQ:NWS) was $80 million for three years. All of the EPL teams, including Manchester United, will see higher broadcasting revenue beginning next year from the new deal. NBC Sports is also available in more households than Fox Soccer Channel, the previous home of most of Manchester United's US aired games. Increased viewership could lead to increased fans, which also trickles down into merchandise and consumer product sales.

In the quarter, the company also reduced its long term debt. At the end of the first quarter, total debt stood at $570.32 million. This was a reduction from last year's $686.89 million. The company used $42 million in IPO proceeds towards long term debt. Debt has been a big concern of shareholders and fans of the company. Owner Malcolm Glazer, who also owns the NFL's Tampa Bay Buccaneers, has increased the team's debt position since he bought the team.

Shares of Manchester United trade at $12.97. Over the last six months of public trading, shares have seen a price between $12.00 and $15.27. In my last article, I argued that Manchester United would see several trophies in 2012/2013, which would help shareholders. The team is in good position, with a first place in the EPL and first place in group stage of the Champions League, to capture a trophy. However, I think without a trophy, the shares see a nice increase over the 2013 year. The company has a huge consumer value.

Manchester United is one of the most popular and valuable teams in the world. The company is constantly looking for better sponsorship deals, and is finding them in every geographical region of the world. With shares close to fifty two week lows, this is your chance to own part of a professional sports team and perhaps see a profit in 2013.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MANU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.