The history of professional sports franchises issuing shares to the public is short and undistinguished. The Green Bay Packers of the National Football League have technically been public since 1923, though the shares serve a largely ceremonial function and trade on no exchange. The Boston Celtics had a similar share structure though not since 2002.
The game changed the day when English Soccer juggernaut Manchester United went public on the New York Stock Exchange. Unlike the Celtics and Packers, MANU is being sold as a full-blown corporation, with all the expectations to go with that designation. Generally regarded as the most valuable sports franchise in the world, “The Red Devils” raised about $235 million by selling 10% of the company — implying the entire organization is worth some $2.3 billion.
Controlled by the Glazer family, the same group that owns the NFL’s Tampa Bay Buccaneers, Manchester was originally priced at $16 – $20 a share. At that price the team would have been worth more than $3 billion. The price was reduced to $14 last night when no buyers emerged. Even at a discount MANU stock is sitting right at the offering price, a sign that the shares aren’t finding buyers in the market.
An argument could be made that MANU’s cool reception on Wall Street is residual damage from the Facebook IPO last May, but that’s not necessarily a bad thing. It could actually be a sign that Main Street has learned its lesson and refused to rush into an overvalued, high-profile issue thrust before them. Anyone who took the time to “look under the hood” of Manchester United found strong fundamental reasons to avoid the shares.
Among other problems, Manchester United has some $660 million in debt, most of it piled on the team when the Glazer family purchased it for $1.5 billion in 2005. Despite vows to use the IPO funds to pay down that debt, the Glazers later decided to take a significant portion of the money for themselves. The decision leaves the team cash-strapped, even as the Glazers cash out.
More galling still, the Glazers are retaining 97% of the voting rights of the company, despite selling 10% to the public. In other words, shareholders have no say in what the company does. Longtime fans, already dismayed by having their beloved franchise in the hands of American buyout kings, are rightfully concerned that the club’s lack of liquidity will limit its ability to attract top players, the life-blood of any sports franchise.
Manchester United claims 659,000,000 fans. The club has strong advertising revenue, an incredible brand, tremendous merchandising, and a 76,000-seat stadium at which it’s all but impossible to get a seat. For some perspective on the strength of the brand, shipping company DHL Express recently paid $62 million to sponsor ManU’s practice jerseys.
The positives are, as they say on the Street, “in the stock.” 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 15x earnings, less than half the 34x earnings the Glazers are asking for ManU. Which would you rather own?
The bottom line is that the Glazers simply overpriced their asset, showing just the kind of greed that left such a bad taste in the mouths of investors after the Facebook debacle. IPOs may be forever tainted, but maybe retail investors have learned to look before they leap. Perhaps the “suckers” that Wall Street relies upon to buy anything thrust before them have learned from their mistakes.