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Manchester United, Ltd. (NYSE:MANU) made a resounding splash with its August 2012 IPO. However, the hype never quite caught on with regard to its shares. The English Premier League football club (that's "soccer" to us Yanks) was originally hoped to come in at $16, then ended up being subscribed at $14. Post-IPO, the share price has since drifted lower, recently closing at $12.85.

MANU Chart

In September, I wrote in this article how I felt the economics of Manchester United were not likely to make it a strong investment. True, the company has contracted in some mighty new marketing streams, which should see stronger revenues beginning in 2014. However, I had broad reservations that the gaudy gold seen for the future would turn out to be no more than fool's gold.

Since the club's revenues are tied closely to the performance on the pitch, it is important to understand that Manchester United's management has based its financial projections on several assumptions.

This was succinctly set out in its disappointing Q4 2012 results, when management stated:

For fiscal 2013, Manchester United expects:

  • Revenue to be £350 million to £360 million.
  • Adjusted EBITDA to be £107 million to £110 million.

This assumes the team reaches the quarter-finals of the UEFA Champions League and the domestic cups.

Already these assumptions have been blown out of the water. The most obvious part to this is that Manchester United crashed out of the Capital One Cup against rival Chelsea 4-5, leaving them short of the quarterfinal round management expected. Granted, the Capital One Cup is the least of the competitions Manchester United play. Still, already revenues will be short of management expectations.

That said, there still are excellent signs from the club's all-important performance on the field. In the Premier League itself the club responded from early stumbles to now stand in the center of a tight pack, including Chelsea and Manchester City at the top of the league table. In the ever-important Champions League, Manchester United hold a perfect record in the group stage. At least on these fronts, the Reds are holding serve.

But there are still worries. The greatest is the club's defense, which has been shipping goals at a less-than-championship pace. Although its expensive collection of goal scorers has topped the league with 24 goals in nine games so far, the club stands mere ninth in the Premiership in goals allowed. There are already rumblings that the club should purchase new players to strengthen the back line. Management will no doubt do this, because Manchester needs to win.

And in my opinion this is the problem in the modality of European football. Management is not really concerned with turning a profit. Everything is about winning and every last penny needs to be used to provide a winning team. Think of every year when the fans are screaming for the club to pick up new stars during the transfer window. Great for fans, but horrible for investors.

True, Manchester United's new sponsorship deals and increasing Premier League TV money will rise. However, that simply means the already revenue-rich Premier League will be richer, with even more money driving up the player transfer fees and players' wage bill. I can see nothing happening except the same thing that happened the last time there was a huge increase in TV revenue -- all of the increase and more was sucked up by exploding player salaries.

And as I also noted gloomily in my last article:

A final sad note, under the new reorganization of the Manchester United Plc, international sales will be subject to U.S., not U.K., corporate tax. And the rise from a 28% rate to 35% corporate tax rate will be another stiff headwind to fight against.

Manchester United still have the wherewithal to meet revenue expectations for this year. It remains to be seen if the play on the field can meet managements prognostications.

Source: First Disappointment In Manchester United's Revenue