The 134 year-old famous football (as in soccer) team, Manchester United (MANU), has been a controversial IPO from the start. The deal was priced at $14, well below the $18 mid-point of the filing range.
Jefferies, Credit Suisse and JP Morgan ran the books with a ragtag assortment of other banks co-managing the deal across several geographies. Football is, after all, a world-wide phenomenon - as the roadshow made clear.
Private stock company PrivCo weighed in on the deal with a fair value estimate of just $5 share based on their analysis of the comparable companies. They recently defended their stance after the investment banks introduced their own largely positive research coverage with price targets in the $17 range.
Famous investor George Soros made his opinion clear with a large recent purchase of nearly 8% of the Class A shares.
Manchester United Overview
There are two classes of shares, Class A and Class B, with the B having a super-voting status. This deal is for Class A shares. After the IPO there will be 40M Class A and 124M Class B shares for a total of 164M. The pro-forma market capitalization at the mid-point is $3B.
Having the world's consistently top-performing soccer team is the key asset. And the company has built three revenue streams around their "premium content." Note that each is about 1/3 of the business:
- Ticket sales, which are a very stable 111M pounds. The stadium is fixed in size and nearly always sold out with most seats paid for in advance.
- Broadcasting rights, which generate 117M pounds. These are three year contracts so offer strong visibility. They have recently been negotiated and signed with meaningful uplifts of 15-20%+ from prior rates.
- Commercial is 103M pounds and growing the fastest. It's comprised of sponsorship, retail merchandising and online advertising.
Their growth strategy involves a few key facets:
- Tap increasing value of live sports to increase prices and licensing.
- Leverage MANU as a global marketing platform to generate more marketing and promotional fees. (aka whoring it up a bit)
- Push deeper into emerging international markets and social networking.
- Capitalize on new industry cost regulations to consolidate their position as a top team.
Over time they expect that commercial will outgrow the other two businesses and reach 50% of total revenues. They will add other sponsors in areas like energy, mobile phones and other industries not yet represented in the sponsor group.
For example, mobile revenues have grown from 4M pounds a few years ago to 16M pounds in the 2011 fiscal year.
It's a quality media asset. At a $2B the valuation seems fairly high. But the club is in a superior position to most other football teams in terms of getting their media revenue share, ability to layer in additional commercial revenues and player salary limit dynamics that rely on company profitability rather than size of bankroll.
Adjusted EBITDA margins of 33-34% are extremely attractive although the company admits that recent performance resulted from a "stars aligning" year and ongoing margins will be closer to 28-30%.
For investors, 2012 will have be a year of "difficult comps" given the 2011 performance. This situation might reward those who take a patient approach to the deal. Maybe buying a little on the deal and then monitoring the stock closely.
Hedge funds have been reportedly shorting the stock which would pay off if Manchester has an unexpectedly bad (yet possible) season this year.
We think management made a mistake by not instituting a dividend, at least for the Class A shares. It would have given the stock some strong support and paid people at least a little to wait out a year of tough comps.
Is this a new wave?
Would the New York Yankees or Dallas Cowboys possibly come public if this IPO works? Live sports are big. MANU has 49M average live viewers per game, 659M followers and 26M Facebook connections. This has attracted top brands like AON, Nike (NKE), AIG, Chevrolet (GM) and DHL to name a few.
It's been done before. Some may remember the public listing of the Boston Celtics. It ended up not being a major success. It turned out that individuals ownership was limited to hard-core fans and institutions never developed a real appetite for it either. Ultimately the company was sold for $360M and the public listing ceased to exist.
Today, though, the markets are much bigger; certainly in the case of MANU there is a massive global audience. More importantly, these content owners can build multiple commercial revenue streams on top of what they have.
If there are lessons to be learned thusfar it's 1) pay a dividend (especially if you have a dual share class structure) and 2) don't come public off of what everyone agrees was your "best year possible."