Manchester United: An Opportunity To Own A Professional Sports Franchise

Summary

• Manchester United FC is one of only a hand full of professional sports teams publicly traded on an exchange.
• The current stock price is not accounting for normalized revenues, creating a unique buying opportunity in my opinion.
• If you're a Manchester United fan, this could be a chance to own a piece of the club you root for at what I believe is a discounted buying opportunity.

coward_lion/iStock Editorial via Getty Images

Background

If you're a fan of European football you've probably heard of Manchester United. The Manchester United Football Club was founded in 1878 by the Lancashire and Yorkshire Railway company. Today, Manchester United FC is owned by the Glazer family but what you may have not known is that you too can technically own a piece of the club.

In 2012, parent company Manchester United Plc (NYSE:MANU) went public on the New York Stock Exchange. Currently, you can purchase Class A shares on the exchange, but the catch is Class B shares are under complete control of the Glazer family, and through those shares, they hold over 97% of the voting power.

Thesis

The main purpose for writing this article was to highlight the fact you can hold partial ownership of a pro sports franchise that you may be a fan of. Alongside that, there are a few buy points I want to make. Currently, Manchester United's stock price has been suppressed mainly due to the fact COVID-19 greatly impacted broadcasting and matchday revenues in a negative way. With the stock currently 37% off all-time highs and 20% off pre-COVID highs, valuation multiples trading at discounts (in my opinion), and a runway for revenue to normalize in a post-COVID world, I believe Manchester United's current stock price is undervalued.

Revenue Rebound Potential

Matchday Revenues

Like many industries, professional sports were hit hard by COVID-19. In 2019, matchday revenues (ticket sales) for Manchester United made up almost 20% of total revenues. With many European countries in lockdown for portions of 2020, matchday revenues fell almost 20% from 2019 YoY. With only £4,800,000 of matchday revenue reported so far through the previous 3 fiscal quarters, I project matchday revenues to be down over 93% in the fiscal year [FY] '21 due to all matches being played behind closed doors. Now with the delta variant spreading through Europe, I project matchday revenues to recover slowly over the next few years before normalizing in 2025.

Source: Created By Author Using Data From Manchester United 2020 20-F.

Broadcasting Revenues

As matchday revenues deteriorate drastically, I project broadcast revenues to be up 78.2% in FY '21 helping with the revenue rebounding efforts coming out of COVID. Broadcast revenues rebounded sharply in the last 3 quarters mostly due to playing additional premier league games compared to the previous year. As long as games are played on a normal schedule, I project broadcast revenues to come in at just under £250,000,000 in FY '21 and grow at a compound annualized growth rate (CAGR) of 8.6% through FY '25.

Source: Created By Author Using Data From Manchester United 2020 20-F.

Commercial Revenues

Commercial revenues are broken up into two categories: sponsorships and retail, merchandising, apparel & product licensing revenue. Both segments of the commercial revenue category tend to be very sticky for the business. Especially as games are continued to be played (even without fans) and broadcasted, sponsors will continue to support the team. Retail, merchandising, apparel & product licensing revenues are also very sticky due to the massive and growing fan base Manchester United has. According to a survey quoted in their 20-F filing, Manchester United has 1.1 billion combined fans and followers worldwide. "This is comprised of 467 million fans and 635 million followers (compared to 277 million and 382 million, respectively, in 2011)."

Price Target

Because my focus is on revenue normalization coming out of COVID, I decided to base my price target on revenue and enterprise value/revenue (EV/S) forecasts. Below is the next twelve months (NTM) EV/S chart of Manchester United since IPO:

Source: Koyfin

My interpretation of this graph is that Manchester United typically oscillates between 4.0x and 5.0x EV/S with severe outliers being 3.5x and 5.75x. With a current EV/S multiple of 3.9x, I personally would consider Manchester United at the bottom of its EV/S channel. Again, with a significant focus on normalization, I have chosen 4.5x EV/S in the year 2025 as my forecasted multiple. The reasoning behind this is I think the stock can reach what I would call the middle of the channel as broadcast revenues continue to grow, along with the expectation of matchday revenues fully recovering.

Source: Created By Author Using Data From Koyfin

Since 2016, Manchester United has paid a £0.14 dividend and shares outstanding have hovered around 164 million consistently. If these variables stay constant moving forward, with a current stock price (at the time of writing this article) of $15.85, Manchester's dividend yield is 1.24%.

Source: Created By Author Using Data From Koyfin

If you add this on top of the 10.65% forecasted CAGR from the forecasts above, you would have a total estimated return stack of 11.89% per year until FY '25.

Risks

COVID-19

One of the major risks with Manchester United currently revolves around the severity of the delta variant. If COVID-19 persists and the delta variant spreads across Europe rapidly, matchday revenues would most likely continue to suffer alongside broadcast revenues if games were to be canceled.

Loss of Key Personnel

Players for the football club are extremely valuable assets to the team. If certain key players were to be traded, retire, or leave the team for any other reason, it is likely, in my opinion, that commercial revenues could be significantly impacted.

Final Thoughts

Outside of revenue normalization, multiple expansion, and consistent dividend payments, owning stock in Manchester United may mean more for some people. Capturing my forecasted 11.89% annualized growth until FY '25 could be an excellent incentive but the feeling of involvement in one's beloved sports team could be an additional reason to own the position. For example, since whispers began all the way to the actual signing of the winger Jadon Sancho, Manchester's stock increased roughly 9% in 4 days.

If Manchester United isn't a team you follow closely, other publicly traded sports teams include: New York Knicks and New York Rangers (MSGS), Juventus FC (JUVE), Atlanta Braves (BATRK), Green Bay Packers (not exchange traded), Borussia Dortmund (OTCPK:BORUF), and the Toronto Blue Jays (RCI).

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MANU either through stock ownership, options, or other derivatives. 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.

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